Deleveraging in a highly indebted property market: Who does it and are there implications for household consumption?

A distinguishing feature of the period preceding the 2007/08 financial crisis was the sizeable increase in private sector debt observed across many countries. A key component of household liabilities is mortgage debt and with many countries experiencing persistent increases in house prices from the mid-1990s onwards, a marked increase in this aspect of household leverage was observed. While aggregate statistics across countries confirm reductions in personal debt levels in recent years, relatively few sources of micro data are available to examine the nature of the deleveraging process at the household level. In this paper, using a unique combination of regulatory and survey data, we examine deleveraging amongst a representative sample of mortgaged Irish households. In particular, we examine the characteristics of households presently reducing their debt levels and empirically assess whether the subsequent balance sheet adjustments have implications for key economic decisions. Our analysis suggests that, typically, it is those households who can deleverage, who do, and furthermore the decision to deleverage has negative implications for household consumption.