Ben Broadbent: Debt dynamics

Speech by Mr Ben Broadbent, Deputy Governor for Monetary Policy of the Bank of England, at the London Business School, London, 23 January 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction and summary

In mid-2007, as the first cracks in the financial system began to appear, some of the most indebted households in the developed world were not in the US or the UK but in the Netherlands. Average mortgage debt was almost twice average annual income. Yet over the following few years, there were almost no defaults on Dutch mortgages and associated losses for the lending banks were minimal.

In the UK, where households were less heavily indebted, mortgage losses were somewhat higher though still comparatively low. It was in the US - of the three, the country with the least mortgage debt - where rates of negative equity and ultimate default were by far the most severe. So at least among this mini-sample of three, prior levels of debt were not a good guide to the scale of the subsequent distress in the mortgage market.