Friday 28 November 2014

Wealthy households cutting debt

Charlie Weston Personal Finance Editor

Published 12/03/2014 | 02:30

Couples who pay off their mortgages early are spending less on other services. Picture posed. Thinkstock

EFFORTS by households to overpay their mortgages and other debts will mean they spend less on goods and services, a Central Bank research paper has found.

Older and wealthier households are more likely to engage in what the researchers call deleveraging – reducing their personal debt levels. And those engaged in overpaying their debts to reduce them are more likely to have a third-level education, the paper entitled 'Deleveraging in a highly indebted property market' found.

Households making efforts to overpay their debts also save less, the research by Yvonne McCarthy and Kieran McQuinn from the Central Bank found.

Recent research by Ms McCarthy found that people on higher incomes are less likely to be behind on their repayments.

However, the majority of those in mortgage arrears have a job. The finding challenges the view that unemployment is the main driver of mortgage arrears. And people who have a standard variable rate mortgages, rather than a cheap tracker, have a higher tendency to fall behind on their home-loan repayments. Three out of four of arrears cases are in a household headed up by a person in a job.

However, these people are likely to have been hit by a sharp fall in their income due to wage cuts, a loss of overtime and a reduction in hours they work.

Irish Independent

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