Debt is a structural feature of many European economies and for a lot of individuals it is simply not possible for them to manage without it, according to the latest research from Finaccord. As a result, European consumers are not rushing to pay off their debts, in spite of the troubled macro-economic picture in many countries.
Market research group, Finaccord, looked at debt across 20 European nations - namely, Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden, Switzerland, Turkey and the UK.
For the 20 countries included in Finaccord's research consumer mortgage and non-mortgage loans outstanding totalled EUR 9.08trn at the end of 2011, up from EUR 8.03trn in 2007. Of the EUR 9.08trn total, EUR 7.35trn was attributable to mortgage lending and the balance of EUR 1.73trn to other forms of consumer lending, such as car finance, credit card debt and personal loans.
Ciommenting on the findings, Alan Leach, Director of Finaccord said: “In most countries, the idea that households are shoring up their financial situation by paying off loans is simply not correct. Rather, the value of outstanding consumer debt is a structural feature of many economies and for a lot of individuals it is simply not possible for them to manage without it."
In fact, across the 20 countries investigated, the value of total consumer loans outstanding fell in only two countries between 2007 and 2011, namely Ireland (by a huge 39.2%) and Spain (by a very modest 0.3%). Elsewhere, the most rapid growth in consumer debt was witnessed in Turkey (up by 136.5%) and Poland (up by 131.1%).
In the UK, which is Europe's largest market for retail lending in absolute terms, mortgage and other consumer borrowing reached a total value of EUR 1.67trn at the end of 2011 - equivalent to EUR 26,619 (or about GBP 22,469) per capita - with mortgage debt reaching EUR 1.43trn (up from EUR 1.37trn at the end of 2007) and other types of consumer debt standing at EUR 0.24 trillion (down slightly from EUR 0.26trn in 2007).
“Looking at the total value of consumer debt outstanding doesn't tell the whole story. Rather, a further crucial metric is the split of that debt between relatively 'cheap' mortgage lending, for which interest rates tend to be low, and comparatively 'expensive' non-mortgage debt, for which interest rates are invariably much higher," said Leach.
Across the 20 countries surveyed, 'expensive' non-mortgage loans made up just 4.1% and 4.2% of total consumer loans outstanding in the Netherlands and Switzerland, respectively. Here, it seems that many individuals in need of liquidity are able to avoid taking out consumer finance contracts or credit cards that charge high interest rates simply by increasing the size of their mortgage. In contrast, a respective 70.8% and 67.1% of total consumer loans in Russia and Turkey were classifiable as 'expensive' non-mortgage loans at the end of 2011. However, while these percentages seem very high, they are partly a function of the fact that these two countries have very small residential mortgage markets. Moreover, as a percentage of GDP, neither total nor non-mortgage consumer lending is particularly high in either country.
Calculating consumer indebtedness as a proportion of GDP is one way of measuring its fundamental affordability. Looking at total consumer loans, including both mortgage and non-mortgage debt, the highest percentages in 2011 were recorded in Switzerland (131.9%) and Denmark (121.2%) mainly as a consequence of the very large mortgage sectors in these countries.
With a focus on 'expensive' non-mortgage loans in isolation, it is telling that the highest percentage in 2011 was registered in Greece at 22.6%, followed by Spain at 16.9%. This data is shown in the following graphic which plots the position of the various countries analysed in terms of mortgage loans outstanding as a percentage of GDP on the horizontal axis and non-mortgage debt as a percentage of GDP on the vertical axis.
“Relative to the country's ability to generate wealth to fund its level of consumer borrowing, the UK is in a less precarious situation than some of its counterparts elsewhere in Europe. As a percentage of GDP, both mortgage and non-mortgage lending run at a higher level in Denmark, and a number of countries, most notably Greece, are more visibly saddled with 'expensive' non-mortgage consumer loans that their inhabitants might struggle to repay given the wider macro-economic environment," concluded Leach.
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