This publication is categorised as a CSO Frontier Series Output. Particular care must be taken when interpreting the statistics in this release as it may use new methods which are under development and/or data sources which may be incomplete, for example new administrative data sources.
The ability of households to meet their debt commitments are illustrated by a variety of debt ratios which are published in the Background Notes. These illustrate the sustainability of household debt in Ireland. For households who own the household’s main residence (HMR), mortgage debt repayments are a key factor in determining the household’s debt sustainability. The sustainability of household debt depends on a variety of factors, including the amount of mortgage debt, duration of mortgage, interest rates, household income, and overall financial management. In this analysis the effect of interest rate and household income changes are investigated to identify trends in households’ mortgage debt service to income (DSI) ratio over the period 2020 to 2023.
The debt service to income ratio for household’s main residence mortgage debt is the ratio between total monthly debt payments and household gross monthly income. In this analysis median debt service to income ratios are presented by the gross households income distribution and by mortgage type. The analysis is focused on households with mortgage debts relating to their household’s main residence. Households in the analysis are also restricted to a panel of those households who had mortgage debt continuously over the analysis period 2020 to 2023. The analysis excludes those households who entered the mortgage market at some point over the period and excludes those households who have left the mortgage market during this period. The rationale for the exclusion of these households is to remove the compositional effect new entrants or leavers from the mortgage market have on the median debt service to income ratio.
The median debt service to income ratio is identified by ranking each household (with a mortgage on the household’s main residence) from lowest to highest based upon the proportion of their gross household income required to service their monthly mortgage payment and selecting the household with the middle or median value.
To investigate changes in debt service to income ratios in more detail, households are grouped by gross household income into five equal groups, called quintiles, with the 20% of households with the lowest income in the first quintile and 20% of households with the highest income in the fifth quintile. The other key analysis variable is mortgage type, which includes variable rate mortgages, tracker rate mortgages and fixed-rate mortgages. Other mortgage types are not reported as a separate group in the analysis, due to the low number of observations, but are included in the results for “All mortgage types.” The composition of households in each mortgage type group can change during the period. For example, household with a variable rate mortgage at the start of the period may have changed to a fixed-rate mortgage at some point. This movement between mortgage type groups has a compositional effect on results throughout the analysis, except for the section relating to table 2.3 which holds the mortgage type groups constant for the analysis period.
The analysis is presented in half year periods from the first half of 2020 (H1 2020) to the first half of 2023 (H1 2023).
The interest component of debt repayments can have an impact on households’ repayment capability. Changes to base interest rates by the European Central Bank (ECB) and how they are passed on to households by lending institutions can affect household debt sustainability by directly impacting borrowing costs and indirectly influencing economic conditions. Households with variable rate and tracker rate mortgages are more immediately affected by changes to interest rates, while fixed-rate mortgage holders may experience effects when refinancing or restructuring. The overall impact on debt sustainability depends on various factors, including the individual financial situation of households and broader economic conditions.
The Governing Council of the ECB sets the key interest rates for the euro area. The rate on the deposit facility, which banks may use to make overnight deposits with the Eurosystem was at its lowest rate of -0.5% from 18 September 2019 where it remained until July 2022.
On 27 July 2022, the ECB began a process of increasing interest rates for the euro area. These increases continued during the analysis period. Please see the Household Finance and Consumption Survey (HFCS) for details of ECB interest rates over the analysis period.
To assess how changes to interest rates and household incomes have affected financial stability and household resilience, this analysis uses an experimental approach to estimate debt-sustainability metrics. By combining administrative income and credit data with survey data on household balance sheets, we show how debt-service ratios (the proportion of gross income that goes towards debt servicing or repayments) changed in the period 2020 to 2023.
This Frontier Publication is an experimental piece of analysis where new methods are used, new data sources are combined and analysed to provide timely policy relevant information and insight to policy makers on the wider economic effects of interest rate changes. Income and expenditure shocks for indebted households can have large negative consequences for macroeconomic outcomes, as well as diverse effects when certain groups of the population are more negatively affected than others.
The Household Finance and Consumption Survey (HFCS) is the official source of household debt and wealth statistics in Ireland. This publication uses data from the CSO’s HFCS 2020 combined with administrative data sources of income and debt repayments for the period 2020 to 2023. This allows us to estimate changes in gross household income and debt service ratios across the household income distribution and by mortgage type.
The administrative income data matched to HFCS 2020 microdata include: employee earnings, from the Revenue Commissioners' (Revenue) PAYE Modernisation (PMOD) payroll data, public pension payments, unemployment payments and regular social transfers, from Department of Social Protection (DSP) payment data; the Pandemic Unemployment Payment (PUP), from DSP data; and the Temporary and Employment Wage Subsidy Scheme (T/EWSS), from Revenue. Where no administrative income data was available the HFCS 2020 data was utilised instead. Further information on the data sources used in this publication can be found in the Background Notes.
The administrative mortgage debt data matched to HFCS 2020 microdata includes the household mortgage debt value, outstanding debt balance, monthly repayment amount, interest rate, mortgage debt type and term, from the Central Bank of Ireland’s Central Credit Register.
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