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The household debt burden: an affordable increase
Spanish households' indebtedness has increased significantly in recent years and exceeds 120% of their disposable income. Taking on a higher level of debt has a structural component stemming from the greater macroeconomic and financial stability that belonging to the EMU has brought with it.
However, the increase in households' liabilities has important economic effects. Thus, the financial position of households and the economy has become more sensitive to shocks in interest rates and in asset prices. Generally speaking, employment and the debt burden are the main reasons fo1r the increase in defaults on the part of households1. This box presents an estimate of the debt burden.
Taking advantage of the release of the microeconomic data from the Survey of Households Finances and the interest rate statistics available for both the EMU aggregate and for some of its major economies, a debt burden has been drawn up. Although it is an indicator that should be viewed with caution because of the great differences between the macro analysis and the micro analysis of this type of variable, it enables us to make an international comparison and to obtain some idea about the impact the future path of monetary policy will have on household economy.
Debt burden Estimation
The debt burden is simply the amount of the loan instalments households have pending2 in relation to their disposable income. To calculate it, the amount of debt pending must be known, together with the maturity periods of the loans, the interest rates households pay on these debts and disposable household income.
The main problem to estimate the household debt burden is the lack of statistics about the maturity of the different loans in banks' portfolio. Thus, in its estimates the Bank of Spain uses non-public information provided by the banks. However, although it only presents the financial situation of households for business year 2002, the publication of the micro figures in the Survey of Households Finances makes it possible to estimate the average life of the loan portfolio distinguishing between loans for housing and the others.
On the basis of this survey, the profile of household debt repayment by type of loan in 2002 was extracted and used to calculate the average life of the loan portfolio on that date. Then the growth of the gross portfolio of loans for housing which are assumed to be granted for the average period given in Property Registrars' statistics was calculated and the average life of the portfolio was then estimated. Thus, as of December 2006, the average life of
loans for housing in banks' portfolio is estimated at 19.2 years. This figure could have downward bias since, according to a survey conducted in the first quarter of the year for the Agenda Negociadora de Productos Bancarios, household mortgages in force already had an average maturity of 21 years. This discrepancy could be due to the lack of data on early repayments and the maturities of the loans that are repaid. In the case of other loans, as there is no average maturity, as from 20024 they were left constant at the levels existing in the survey4 .
This assumption is reasonable as it is assumed that the greater weight of short-term financing has been offset by the lengthening of the maturities of loans for acquiring consumer durables.
In respect of interest rates, unlike the Bank of Spain's methodology, the interest rates on the outstanding balances were used rather than the rates on new transactions, since they are a better reflection of the impact of interest rates on the loan portfolio. In fact, when the correlation between market rates and the interest rates on the outstanding balances of loans is analyzed, it is observed that the interest rates in the loan portfolio take six months to reflect the behaviour of market rates.
As is indicated in "Household debt and the macroeconomy". BIS Quarterly Review. March 2004.
2 Including the loans written off the balance sheet as a result of securitization.
3 See Del Rio, A. "El endeudamiento de las familias". Bank of Spain Working paper no. 0228 (2002).

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