Related analytical work
Andritzky, J. (2014), “Resolving Residential Mortgage Distress: Time to Modify?” IMF Working Paper.
Berger, H., T. Dowling, S. Lanau, W. Lian, M. Mrkaic, M. Taheri Sanjani, and P. Rabanal (forthcoming), “Steady As She Goes—Estimating Potential GDP During Financial Booms and Busts.”
DeLong, C., M. Balz, and I. Tirado (2014), “Strengthening the Insolvency Framework for SMEs,” IMF Selected Issues, 2014 Article IV consultation with Spain.
Hassine, M. (2014), “Housing Market and Finance in the Netherlands,” IMF Selected Issues, 2014 Article IV consultation with the Netherlands.
Mrkaic, M. (2014), “House Prices, Consumption, and Household Debt Overhang in the Netherlands,” IMF Selected Issues, 2014 Article IV consultation with the Netherlands.
Shirono, K. (2014), “Household Debt in Denmark,” IMF Selected Issues, 2014 Article IV consultation with Denmark.
Andersen, A. L., C. Duus, and T. L. Jensen, 2014, “Household Debt and Consumption During the Financial Crisis: Evidence from Danish Micro Data,” Working Paper no. 89, Danmarks Nationalbank.
Borio, C., P. Disyatat, and M. Juselius, “Rethinking Potential Output: Embedding Information about the Financial Cycle.” BIS Working Papers, No 404, February 2013.
Collins, M., K. Lam, and C. Herbert, 2011, “State Mortgage Foreclosure Policies and Lender Interventions: Impacts on Borrower Behavior in Default.” Journal of Policy Analysis and Management 30 (2), 216–232.
Hysteresis effects are likely to be smaller in countries, such as Denmark, that have narrower output gaps and lower unemployment rates.
That said, the transmission of lower ECB policy rates into lending rates has also not been fully uniform, with credit spreads rising at times for some types of mortgages, especially in countries most affected by the crisis.
However, variable-rate mortgages also increase sensitivity to upward interest-rate shocks.
Longer-term fiscal costs might be higher if the additional transfers today reduce future transfers that would have been taxed, perhaps under the inheritance tax. Such effects are likely to be mitigated by the €100,000 limit on the exemption.
The precise degree to which the transfers are additional to those that would have occurred anyway is likely to become clearer as more detailed data on the transfers become available.
This issue does not arise in defined-contribution schemes (e.g., as in Denmark).
This section focuses on the insolvency regimes in Ireland and Spain, as mortgage arrears are more elevated in these countries than in Denmark and the Netherlands. Given the recent adoption of the reforms in Ireland and Spain, it is also still early to draw strong conclusions regarding whether such reforms have achieved the intended objectives.
This report does not discuss the extent to which an involuntary modification of a mortgage claim in the insolvency process would be appropriate.
The amendment also (i) established that 50 percent of any capital gain in the sale of the foreclosed property, over the next 10 years after foreclosure, should be devoted to reducing the remaining debt of the borrower, thereby increasing the amount of potential debt discharge; (ii) capped the interest rate on mortgage defaults to three times the statutory interest rate; and (iii) limited foreclosure legal fees to 5 percent of the amount claimed, among other measures.
For example, in Spain corporate insolvency proceedings on average last about 650 days.
For more specific suggestions on reforming Spain’s insolvency framework and information on recent reforms, see Chapter 6 in the
In Spain, taxation of debt relief was eliminated for eligible borrowers restructuring their debt under the “Code of Good Practices” (Box 4).
One interim approach could also be to convert interest expense from a tax deduction to a credit, with a fixed cap. This would reduce the regressivity of deductibility and limit the incentive to take on new debt (once the cap is reached) while still addressing some of the affordability concerns that would arise if interest deductibility were eliminated.
Administrative appraisal values can be updated five years after the last valuation, but in practice the average valuation update is much longer.