The Drivers of Household Over-Indebtedness and Delinquency on Mortgage Loans: Evidence from Italian Microdata

This paper investigates the main determinants of household delinquency on mortgage loans in Italy. Using a sample-selection ordered choice model, we assess the impact of socio-demographic factors, loan characteristics and institutional variables both on the probability of delinquency in mortgage repayments and on the amount of arrears. Our results, based on microdata from the Italian component of the EU-SILC survey, allow to identify which types of households are more financially vulnerable and show the relevance of institutional factors in affecting the conditional intensity of arrears. Based on the predicted probabilities of arrears, we further analyse the relationship between interest rates on mortgage loans and observed borrower riskiness. Results point out that, in the whole period of analysis, Italian banks have accounted for household credit risk and have used risk-based pricing strategies in the process of mortgage loans granting.