Real estate financing
|
|
|||||||||||
|
Real Estate Watch
|
|||||||||||
|
|
|||||||||||
|
Another problem when it comes to analyzing the household debt burden is the treatment of debt maturing in less than a year, because there are debts that are renewed when they reach their maturity, without having to pay the principal, as is the case of credit lines or cards.
Here, we chose to calculate three types of debt burden on the basis of three assumptions. The first is that households only pay interest on debts that are for less than one year. Second, it is assumed that 100% of the principal of debt maturing in less than a year is paid and, third, there is an intermediate assumption where half is paid.
Evolution of the Spanish household debt burden
As can be observed in Chart 2, the debt burden has increased continuously in the last decade. However, no direct relation is observed with the level of indebtedness, due to the behaviour of interest rates and the length period for which loans are granted. In fact, when the debt burden is broken down into principal and interest, the interest payment is found to have remained very steady at around 4%, while the payment of the principal, influenced by the increase in the volume of debt, is what has led to an increase in the debt burden.
|
|||||||||||
|
International comparison
The increase in indebtedness in recent years was boosted by the Spanish economy's convergence with other European economies. To illustrate this, the household debt burden was calculated for countries which have same type of loan and interest rate statistics as the Bank of Spain (Germany, The Netherlands and Greece) and for the EMU aggregate5.
As can be seen in chart 4, the total debt burden (with the payment of 100% of the principal of short-term debt) for the four economies selected would range between the Netherlands's 23% and Germany's 15% and, for long-term debt, between the Netherlands's 14% and Greece's 5%. Spain, with 16% in the first case and 11% in the second, would be in an intermediate position. However, caution must be exercised when it comes to comparing the levels of the debt burden because there are significant differences in how this burden is distributed in different countries. Thus, as the European Central Bank reveals in its Financial Stability Report of June 2005, while in some economies such as United Kingdom or the Netherlands approximately 65% of households have some kind of debt, in Germany the percentage is between 40% and 50% and in Italy less than 20%. In Spain's case, according to the Survey of Households Finances, 46% of Spanish households had some type of debt in 2002.
|
|||||||||||
 - 0025-1.jpg) |
|||||||||||
|
|
|||||||||||
|
In fact, the contributions to the debt burden from the increase in debt, income, maturity and interest rates show that in the last two years, the increase in the debt burden is largely explained by the sharp increase in loans granted to households, partly offset by the positive performance of household income. Interest rates and loan maturities also made a negative contribution, albeit in a more marginal manner.
|
On analyzing the debt burden for house purchase, it is surprising to see that it carries less weight in the total than in the Netherlands or Germany. In the case of the Netherlands, it may be due to the frequent use of the
|
||||||||||
|
5 Because of the lack of information about the maturities of loans of over 5 years, the same ones were used as for Spain. Consequently, this comparison should be viewed with caution.
|
|||||||||||