1.
HOUSEHOLD ACCESS TO CONSUMER CREDIT AND MORTGAGE LOANS
 Consumer credit
 Consumer credit market in Belgium: diversified and meets households' needs,
but financially vulnerable borrowers require consideration
 Regulation has impact on access to finance for certain household categories
 Changing environment leads to new challenges in regulation
 Mortgage loans
 Increasing mortgage debt at BE and EU level
 Risk pockets: households with high debt ratios or small savings buffers
 Challenge for central bank: combining prudential measures that ensure financial system
stability with access to finance for households
2.
HOUSEHOLD ACCESS TO CONSUMER CREDIT AND MORTGAGE LOANS
1 INTRODUCTION
Good morning, ladies and gentlemen. Good morning, Enrique.
Let me start by saying that it's an honour for the National Bank of Belgium to host this year's ACCIS
Conference. And it's with great pleasure that I accepted Enrique's invitation to welcome you with a
few words.
As you know, the nature of our credit register is rather different from most other ACCIS members.
Belgium has a public register, regulated by specific legislation and managed by the National Bank.
And while it's not a core business of a central bank, we strongly believe in the advantages of this
structure. Not only because preventing over-indebtedness is a matter of general interest, but also
because credit data are useful in our mission as a prudential supervisor and for different economic
studies that we carry out.
And the topic of my opening speech, household access to consumer credit and mortgage loans, is a
perfect example of this fruitful cooperation between our departments, because it's partially based on
data from our credit register.
2 CONSUMER CREDIT
2.1 CONSUMER CREDIT MARKET IN BELGIUM - VULNERABILITIES
Now, Enrique has only allowed me 10 minutes, so let me begin immediately by presenting you with
the most important conclusions of a recent study that we did on the consumer credit market in
Belgium. To give you an idea of the market size: it totalled 5,1 million loans representing an
outstanding amount of 21 billion euro at the end of 2021, and more than half of the adult population
has at least one consumer credit.
Our study showed that the Belgian market for consumer loans is generally mature and diversified.
There are several categories of lenders and the credit they offer, meets various household financing
needs. The majority of the loans are also provided at interest rates well below the legal maximum.
However, we identified two market segments where that's less the case and which thus need specific
attention in order to ensure access to finance.
On the supply side, this concerns credit lines and instalment loans granted for an unspecified
purpose. For both credit types, there is much less diversity, with interest rates being very uniform
across different lenders and close to the permitted maximum.
On the demand side, on the other hand, it seems that there is a negative correlation between being
financially more vulnerable and having to pay higher interest rates. Indeed, we saw that the main
feature of households paying higher rates, was that they had less net wealth than other categories.
Furthermore, a substantial proportion of these high-rate loans are used to repay other consumer
credits or to cover current expenditure. In general, consumers contracting this type of credit have
significantly lower incomes and net wealth than consumers that borrow for other purposes.
2.2 REGULATION & ACCESS TO THE CONSUMER CREDIT MARKET
In Belgium as elsewhere in Europe, national legislation on consumer credit must comply with the
Consumer Credit Directive, which aims to ensure transparent and efficient credit markets, while at
the same time protecting consumers. It's obvious that changes to the regulations may have an impact
on access to the consumer credit market for certain categories of borrowers. This is especially true
for those who are financially more vulnerable.
3.
But we must be careful to ensure that changes do achieve the intended goal, because that is not
necessarily the case. Let's take for example the maximum interest rate that can be applied according
to the type of credit.
While a rise in maximum interest rates offers lenders incentives to grant loans to consumers with a
higher risk profile, it's clear that this could also overburden borrowers.
Conversely, a reduction would normally enable households to borrow at more moderate rates. But if
the reduction is too large, there is a potential danger that they could be denied access to credit if
lenders consider that the lower rates no longer cover the risks. Lowering maximum rates could also
have a negative impact on the generation of interest income and consequently, on the lender's
general profitability. This is especially the case if consumer credit makes up a significant share of his
business. A lender might consider that the lower maximum rates are no longer enough to generate
an adequate profit margin, which could lead to a market situation where lenders cease to offer certain
credit types.
So, changing the regulations can be a good thing, but we must be aware of potential risks. That's
why it's important to analyse in advance whether the intended measures can achieve their goal.
2.3 NEW CHALLENGES
At the same time, the consumer credit market is undergoing accelerated changes that may lead to
new challenges for regulation. One of these changes relates to mobile applications and the
proliferation of market channels.
Indeed, one of the main problems concerns the cost of credit obtainable at very short notice,
especially via mobile applications. It's speedy but expensive, because the estimated default risk is
higher. These very short-term loans for modest amounts, so called "payday loans" or "flash credit",
are often negotiated on loan platforms on a peer-to-peer basis, by-passing national legislation.
Companies operating in this segment don't always assess the consumers' borrowing capacity
correctly, nor do they include any comparable rates in their offers. Some countries, like the
Netherlands, have introduced regulations on this type of lending, but that causes these activities to
move to other Member States or onto the internet. Such practices show the need for coordination
between countries and regulation at European level.
On the other hand, in order to maintain sound access to the credit market, we also have to consider
some consumer characteristics. Over-indebtedness often goes hand in hand with underdeveloped
financial literacy. In that regard, the most vulnerable groups are poorly educated consumers, young
people, the unemployed, the elderly and migrants. Research in the United States and Germany also
shows that lenders offer products on far less favourable terms to consumers with a lower level of
financial literacy. Therefore, programmes offering financial education right from primary school, or
providing training for the elderly or for migrants, should be encouraged. And of course, these
observations also justify the importance of appropriate regulation.
So, without any doubt, regulation can have an impact on access to finance for certain categories of
consumers. Any change in the regulations should therefore pay attention to the need for finance and
the potential credit constraints, but also to the risk of over-indebtedness. And as the market is open
to lenders that are not subject to national regulation, this also highlights the need for uniform
legislation throughout the European Union.
3 MORTGAGE LOANS
If you allow me, I would also like to say a few words about mortgage loans.
At the end of last year, household debt in Belgium stood at 63 % of Belgian gross domestic product,
one of its highest levels in recent decades. Overall, it has been increasing since 2002 and for the
past six years, it has slightly exceeded the euro area average. This rise is driven almost entirely by
mortgage debts, which, with an outstanding amount of 275 billion euro, represent 54 % of GDP.
4.
According to a survey by the National Bank, almost three-quarters of Belgian households live in a
property that they own. This would not be possible without borrowing: about one third of all
households have a mortgage loan, most often contracted to build or buy their main residence. Yet,
credit is not equally available to everyone. Households with lower income and wealth levels or those
where the family head is unemployed or not working for other reasons than being retired, are more
likely to face constraints in obtaining credit.
Both loan providers and regulators should also try to avoid a situation where households become
over-indebted. Over-indebtedness is very disruptive and distressing for a family or an individual. On
a macro-economic scale, it can also aggravate a financial or economic crisis, with serious impact for
entire economies.
But while household debts have gone up in the aggregate, on average there doesn't seem to be a
higher risk of over-indebtedness in Belgium. Nevertheless, some pockets of risk remain. Younger
households have higher debt levels relative to the value of their assets and they need to spend a
bigger share of their income on servicing their debt. Indicators of vulnerability are also higher for
households with lower incomes. The same goes for single-parent households and adults living on
their own.
For these reasons, one of the most important challenges for a central bank in its role as prudential
supervisor, is to find a way to limit risks for the financial system without restricting people's access
to credit, especially younger households.
4 CLOSING REMARKS
Now I could go on for a very long time about the measures that we've imposed on banks to ensure
financial stability while at the same time safeguarding access to finance for consumers and
companies, but I see that Enrique is already looking anxiously at his watch.
So, I'll leave it there :-).
All that's left for me to do now is to say that I hope you have a pleasant and instructive day. But
seeing the topics and the speakers on today's programme, I'm absolutely convinced that you will.
Thank you!