Shedding new light on the mortgage debt of households in Belgium

Article published in the Economic Review of June 2018

Belgian household debt has risen almost continuously since the early 2000s, mainly as a result of mortgage loans. Combined with rising house prices, that represents a potential threat to financial stability in the event of an adverse shock affecting employment and borrowers’ incomes. It is therefore a key point for the attention of the prudential authorities.

In addition to presenting the macroeconomic and individual data (obtained from surveys), the analysis aims to put forward new factors accounting for this increased debt on the basis of statistics broken down by municipality. Since these data are available by age group, they are the most detailed currently available data covering the entire Belgian population for examining the relationships between household loans, household incomes and property prices.

The results show that the volume of mortgage loans granted during a period of time depends, unsurprisingly, on the macroeconomic environment, but also on the characteristics of the population, and on property prices.

At macroeconomic level, lending to Belgian households in recent years has been influenced by the banks’ supply strategies, government fiscal measures and monetary and macroprudential policies.

Among the determinants specific to households, income, demographic structure and age were identified as factors explaining the increasing debt. In particular, the majority of mortgage loans are granted to persons in the 25 to 44 age group. Within that group there is also a very strong link between the amounts loaned by banks and income. That link is less pronounced in the case of older age groups.

House prices also have a positive impact on the amount of mortgage loans. However, that link is weaker in regions where – as in Brussels – a relatively large proportion of residents rent their home.

Finally, it should be borne in mind that, while the close link between debt and income reflects a sound lending policy on the part of the banks, pockets of risk nevertheless persist on the Belgian mortgage market. They are concentrated on the categories of households that devote a large part of their income to debt repayment and which have meagre financial reserves to cope with any job loss.