Table 4.4 suggests that among the households with mortgage debt, households with a foreign currency mortgage are less vulnerable to economic shocks than those which have a local currency mortgage. Households with an FX mortgage have higher income and are better educate. It is particularly reassuring that self-employed households seem to be less likely to take on a FX mortgage than households with wage earnings.

These findings partly confirm recent evidence by Fidurmuc et al. (2011) on intended borrowing in central Europe. They examine household survey data from the EURO Survey, conducted by the Austrian Central Bank (OeNB). This survey has been conducted in 10 countries of Eastern Europe on a half-yearly basis since 2007 and elicits information on household perceptions of economic conditions (e.g. exchange rates), their current financial portfolios and their intentions to borrow in the near future. They show that among the households which intend to take a new loan, those which are younger, better educated, have with savings in euro, and have remittance income are more likely to take a foreign currency loan. In contrast to the data presented above, however, they find that richer households are not more likely to demand FX loans.

# <u>Household Debt and Crisis Impact</u>

Does the fact that credit cards and mortgages are held by the least vulnerable households imply that debt has had a negligible effect on household consumption and investment in the crisis? The recently conducted LITS 2010 survey allows us to assess the impact of household debt on household consumption and investment. In this survey households were asked whether during the crisis they reduced their consumption of goods (food, luxury goods alcoholic drinks), cut the use of services (phone, utilities, health insurance) or sold off some of their assets. In Table 4.5 we relate the consumption and investment behavior of households in the crisis to their use of bank debt (Credit card, Mortgage). We hereby control for household income, education and employment type. The LITS survey also allows us to control for a range of economic shocks which may have hit the household during the crisis: job loss, income reduction, closing of a family business, or a reduction in remittance flows to the household.

The multivariate analysis presented in Table 4.5 suggests that those households with mortgage debt were more likely to reduce their consumption and investment during the crisis. Households with a mortgage were 3% more likely to reduce their consumption of goods and 8% more likely to cut their use of services and 2% more likely to sell assets. By comparison a job loss by a household member increases the probability of reduced consumption, cut services, and asset sales by 8%, 13% and 2% respectively. Thus at roughly half the impact of the effect of income shocks, the impact of mortgage debt on consumption and investment are sizeable from an economic point of view. Interestingly, we find no impact of credit card use on household consumption or investment. This suggests that many credit card holders may not use them to incur substantial debt.

In line with our analysis for foreign currency firm debt, FX mortgages do not seem to be a source of debt overhang in the household sector. Figure 4.2.b plots the incidence of FX mortgages per country against the depreciation of the local currency against the euro in 2008 and 2009. The figure shows clearly that those countries with the highest incidence of FX mortgages 32