|
Abstract:
|
Despite the high international ratings, most international observers have published warnings about the sustainability of mortgage debt in the Netherlands. This is partly due to concerns about tail-risks of specific groups of borrowers. Using different micro data sources, we investigate the affordability of mortgage debt after retirement for different cohorts in the Netherlands. We include factors, such as the drop in income upon retirement or future interest rate shocks, the ability of households to voluntarily repay their debt, which we treat as stochastic, or the sobering down of the mortgage interest deduction. This study shows a significant dampening role of voluntary repayments on the effects of an interest rate shock. We show that after retirement, debt affordability varies across cohorts and scenarios. Our baseline specification shows that 5-6% of those who had a mortgage in 2015 and retiring in the next two decades might no longer be able to afford their debt. We argue that extend interest-only debt might be the only way to reduce the debt burden of this high-risk group. This is not an easy option though, as the supervisory frameworks demand reduction of interest-only debt.
|
