The European Central Bank published Working Paper No 3034 analysing the take-up and behavioural effects of COVID-19 debt forbearance using transaction-level data from a major Portuguese bank. The paper finds that mortgage payment suspensions increased household consumption and bank deposits, with strong heterogeneity across households and substantial participation by borrowers who appeared ineligible under programme rules. Households entering forbearance were more financially fragile even before the pandemic, with lower income and deposits and higher debt-payment-to-income ratios, and liquid wealth was a stronger predictor of take-up than pandemic wage declines. On average, households spent about EUR 0.15 per euro of deferred mortgage payments in the first year, rising to about EUR 0.22 beyond one year, while deposit saving rose by about EUR 0.35 per euro immediately after entering forbearance and stabilised around EUR 0.23 in the long run; reductions in unsecured debt were smaller (around EUR 0.04 per euro). The consumption response was concentrated among lower-liquidity and lower-income households (around EUR 0.30 per euro for below-median deposits versus about EUR 0.07 for above-median deposits). Using proxies for eligibility, around 10% of households appeared eligible, yet 90% of eligible households did not participate and around 80% of participants appeared ineligible, with ineligible participants showing a higher marginal propensity to consume (around EUR 0.18 per euro) than eligible participants (around EUR 0.07). Looking beyond the end of the government moratoria in September 2021, consumption per euro of postponed payment fell from about EUR 0.23 to EUR 0.13 when payments resumed, alongside a move in deposit saving from about EUR 0.23 to around minus EUR 0.12, indicating incomplete adjustment. A small fraction of borrowers took up additional bank relief measures offered from September 2021 (including maturity extensions, interest rate reductions or further payment suspensions), and these households displayed lower consumption sensitivity and higher saving out of postponed payments.
European Central Bank 2025-02-26
European Central Bank working paper finds COVID-19 mortgage forbearance lifted consumption most for low-wealth and ineligible households
The European Central Bank's Working Paper No 3034 examines COVID-19 debt forbearance using data from a Portuguese bank, revealing increased household consumption and bank deposits, with significant heterogeneity among households. Financially fragile households were more likely to enter forbearance, with liquid wealth being a stronger predictor of take-up than pandemic wage declines. Post-moratoria, consumption and deposit saving adjustments were incomplete, with a small fraction of borrowers opting for additional relief measures.