Three Triggers? Negative Equity, Income Shocks and Institutions as Determinants of Mortgage Default

  • Andrew LinnEmail author
  • Ronan C. Lyons


In understanding the determinants of mortgage default, the consensus has moved from an ‘option theory’ model to the ‘double trigger’ hypothesis. Nonetheless, that consensus is based on within-country studies of default. This paper examines the determinants of mortgage default across five European countries, using a large dataset of over 2.3 million active mortgage loans originated between 1991 and 2013 across over 150 banks. The analysis finds support for both elements of the double trigger: while negative equity itself is a relatively small contributor to default, the effect of unemployment, and other variables such as the interest rate, is stronger for those in negative equity. The double trigger, however, varies by country: country-specific factors are found to have a large effect on default rates. For any given level of a loan’s Loan to Value (“LTV”) ratio, and as LTV changes, borrowers were more sensitive to the interest rate and unemployment in Ireland and Portugal than in the UK or the Netherlands.


Mortgage default Negative equity Double trigger European Union 



We thank the editors and anonymous reviewers and the following for helpful comments: Niamh Hallissey, Paul Lyons, Fergal McCann, Rory McElligott, and Rhiannon Sowerbutts.


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.The Bank of EnglandLondonUK
  2. 2.Department of Economics, Trinity College Dublin, Dublin, Ireland; Spatial Economics Research Centre, London School of EconomicsLondonUK

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