Mortgage arrears in Europe: The impact of monetary and macroprudential policies

Petra Gerlach and Seán Lyons



JEL classification
D14, E58, G28

Arrears, negative equity, monetary policy, loan-to-value ratios


Mortgage arrears arise if a household faces affordability problems and/or is in negative equity. Because widespread arrears pose a risk to the stability of banks and limit households' future access to credit, a crucial question is how monetary or macroprudential policies influence their incidence. We use a European household data set to analyse what drives arrears and find that affordability problems, such as unemployment, low income and high mortgage payments, matter, which suggests that monetary policy has an impact. Households facing the dual trigger of affordability problems and negative equity are more likely to go into longer-term arrears; macroprudential regulation preventing high loan-to-value (LTV) ratios can thus also have an impact.