Household Debt Soars Globally After the Outbreak of COVID

When the pandemic broke out in early 2020, the global economy suffered a recession and unemployment rates of many countries rose sharply. A global increase in household debts may be mistakenly interpreted as a general need to borrow for tiding over the difficulties. However, interestingly, even after the global economy has been rebounded substantially when central banks cut their interest rates substantially and simultaneously, household debts are still increasing.

It is generally explained by the fact that many households have jumped on the bandwagons to cash in on the ultra low interest rate opportunity by borrowing more from banks. It has led to a new wave of household debt-to-GDP ratio (DTGR) surges around the world, and the DTGRs of some economies have risen above 100%!

DTGR of many countries has risen above 100%

A sharp rise of DTGR is commonly shared in the world after the outbreak of COVID. Interestingly, the economies with higher DTGRs are usually accompanied with higher house price growth. Figure 1 shows the current top 12 ranked economies in household debt to GDP ratios (DTGRs), including South Korea (106%), which has the highest net housing price growth in the world in 2021; Australia (120%), New Zealand (97.6%) and Canada (109%), all have long-term growths in housing prices in recent years. The DTGRs of the UK and the US are relatively moderate, at 86.9% and 79%.

Figure 1 Economies with the highest global household debt-to-GDP ratios in June 2021 (Sep for Canada). Source: Trading Economics (2022)

DTGR surges after COVID outbreak

Among these countries and regions with currently the highest DTGRs, many of them experienced a sharp rise in the DTGRs only after the outbreak of the pandemic. Figures 2, 3, and 4 show the DTGRs of households in the United States, the United Kingdom, New Zealand and Canada, all show a abrupt surge of more than 5% in 2020, which may be on the one hand related to their slowing GDP growth, and on the other hand, related to the growth of mortgage loans.

Figure 2 US household debt to GDP ratio. Source: Trading Economics (2022)
Figure 3 UK household debt to GDP ratio. Source: Trading Economics (2022)
Figure 4 New Zealand’s household debt to GDP ratio. Source: Trading Economics (2022)
Figure 5 Canada’s household debt to GDP ratio. Source: Trading Economics (2022)

1. DTGR of Hong Kong

Taking Hong Kong as an example, Figure 6 shows the latest data reported by the HKMA to the Legislative Council on February 7. The DTGR in the third quarter of 2021 is a record breaking high point at 92.2%. From 2009 to 2018, Hong Kong’s DTGR only increased slightly, from about 50% to about 70% in a decade. However, since 2019, DTGR of Hong Kong has experienced a sharp rise. The timing for the upturn is a bit earlier than other countries, which implies that the reason for the sharp rise in DTGR is unlikely to be merely related to the pandemic.

Figure 6 Hong Kong’s household debt to GDP ratio. Source: HKMA (2022)

The increase in DTGR in the past three years is more likely to be related to the increase in residential mortgage debt. The blue bars in Figure 6 show that residential mortgages continue to account for the highest proportion of household debts. However, around 2008, mortgage debts accounted for only about 40%, but by 2021, the proportion has risen to more than 60%. In contrast, the other categories of loans, such as loans for other private purposes and credit card advances, do not appear to have changed much after the outbreak of the pandemic. First, it shows that the latest surge in household debt is not driven by the pandemic-induced wave of job losses and business bankruptcies. Second, it also reflects that the net wealth of households in Hong Kong is economically resilient (Figure 7), with a household net worth-to-liabilities ratio of over 11 times, which is much higher than many other advanced economies. It explains why HKMA, the defacto central bank of Hong Kong, considers the Hong Kong’s current mortgage debt level is still healthy.

Figure 2 compares the household net worth-to-liabilities ratio between Hong Kong and other countries. Source: HKMA (2022)

Mortgage Lending Growth

HKMA further provides more data on the amount of newly approved mortgage loans in from 2002 to 2021 (Figure 8). It made a record high of about HK$58 billion per month in June 2021. This phenomenon of astonishing high growth of mortgage loan is commonly found in many other economies in the past two years.

Figure 8 New residential mortgage loans approved and made in Hong Kong, 2002–2021. Source : HKMA (2022)

2. DTGR of Australia

Australia is the second highest country in household debt-to-GDP ratio (DTGR) in the world, with a figure of 120%. Yet, Australia’s DTGR has exceeded 100% since 2006 and has remained high (Figure 9). The situation has long attracted the attention of the RBA, Governor Philip Lowe has pointed out that Australia’s household debt is rising at a double-digit annual rate, while household income is only increasing by 4–5%, which is a worrying situation (Maley, 2021).

Figure 9 Australian household debt to GDP ratio. Source: Trading Economics

Keams, Major & Norman’s (2020) study suggested that Australia’s high household debt was related to the low interest rate environment and financial liberalization. They predicted that once asset prices fell, high household debt would lead to weakened consumption. In fact, after the outbreak of COVID, the RBA had cut interest rates to almost zero level (Figure 10).

Figure 10 Australian interest rates. Source: Trading Economics

Jericho (2021) also pointed out that the continuous rise in Australian property prices is actually positively correlated with the increase in mortgage loans. He provided the following two charts on the association between the annual change in Australian mortgage loans (advanced by 6 months) and the annual change in property prices.

He contended that housing loans determine property prices. As housing loans surged by 83% (Figure 11), he predicted that Australian property prices would continue to rise by 30% by the end of 2021 (Figure 12). According to the latest results announced by Corelogic (2022), the annual change in Australia’s house price index released at the end of January 2022, rose 29.8% in Sydney and 33.09% in Brisbane.

Figure 11 Annual change of Australian property price index and mortgage loan (advanced by 6 months). Source: Jericho (2021)
Figure 12 Scatter plot of the annual change in the Australian house price index and the annual change in mortgage loans (advanced by 6 months). Source: Jericho (2021)

Many evidence shows that when housing loan constraints are loosened, whether it is a reduction in interest rates or an increase in the mortgage-to-value ratio, etc., more households will borrow to buy properties, which pushs up property prices, and at the same time increasing the proportion of household debt, causing property market risks to become debt risks, and it makes central banks’ adjustment policies more difficult.

3. DTGR of New Zealand

Although New Zealand’s household debt to GDP ratio has not yet exceeded 100%, it is very close. A survey report conducted by the central bank last year attributes one of the major causes of housing price hikes in New Zealand to the relaxation of mortgage loans. The following is an excerpt from my column article in the Economic Journal of Hong Kong (Yiu, 2021):

Recalling the various measures introduced by the Bank of New Zealand after the outbreak of the epidemic, including the substantial reduction of the official cash rate (OCR) from 1% to 0.25% in March 2020 (RBNZ, 2020a), which has been maintained until October [2021], major banks lowered their mortgage loan rates, even lower than the inflation rate, resulting in a negative real interest rate period, which is favorable for buyers to enter the market. In addition, the central bank also relaxed the mortgage loan restrictions and removed the upper limit on the proportion of mortgage loans that banks can undertake high-percentage mortgage loans (RBNZ, 2020b). In fact, the central bank pointed out in a report released in February last year that post-pandemic measures led to a sharp rise in mortgage loans. On the one hand, it reflected that the measures were effective in saving the market, but on the other hand, it also proved that the sharp rise in property prices had something to do with financial policies.

Figure [13] shows the monthly change of outstanding amount of residential mortgage loans in New Zealand (RBNZ, 2021a). Before the pandemic, the amount has remained stable at about NZ$1.5 billion per month. However, the amount has soared to over NZ$3 billion per month in the end of 2020, which was more than double of the previous average! Taking November 2020 as an example, the report pointed out that: “The ratio of the mortgage loans with load-to-value ratio exceeding 70% in new investors’ mortgages has increased significantly from about 15% before the relaxation to about 35%.” (RBNZ, 2021a, p10, p13). There has also been a substantial increase in housing transaction volume, which was 20,316 in the fourth quarter of 2019 before the policy change, and after the introduction of the new mortgage policy, the transaction volumes in the third and fourth quarters of 2020 have risen to 25,351 and 27,924, that is an increase of about 30%. The impact of the mortgage policy changes on housing transaction volume and prices works like an experiment. After the relaxation of the mortgage ratio and the sharp reduction of interest rates, house prices, transaction volume and mortgage loan amount simultaneously showed a surge of about 30%!

Figure 13 Monthly change in total outstanding residential mortgage loans in New Zealand (NZ$ million), 2017–2020. Source: RBNZ (2021a)

After releasing the report, the central bank continued the second phase of the experiment. The central bank has hastily announced that the mortgage lending restrictions would be reinstated and the mortgage policy would be tightened due to concerns about financial stability risks” (RBNZ, 2020c). A further tightening of the loan-to-value ratio was made in May and November [2021] (RBNZ, 2021b).

4. DTGR of South Korea

Household debt in South Korea has been well known to be heavy even before the pandemic. After the outbreak of COVID, their household debt has further risen strongly. Interestingly, real increase in housing prices of South Korea have also become the highest globally in 2021.

South Korea’s real property prices rise first in the world

Global house prices have generally risen after the outbreak of COVID. Knight Frank (2021) recently released the global house price index for the third quarter of 2021. The real annual increase in house prices in South Korea was as high as 23.9%, which was higher than the second and third highest of Sweden (17.8% ) and New Zealand (17.0%) by more than 6%, and higher than the second highest in Asia of Taiwan (6.9%) by 17%!

This wave of property price hikes is obviously related to the central bank’s interest rate cuts after the outbreak of the pandemic. Since the end of 2019, the interest rate in South Korea has been reduced from 1.5% to 0.5%. During the same period, inflation has risen from a deflation to 4%, resulting in a period of negative real interest rates, which pushes up asset prices. Figure 14 shows that since 2020, the house price index in South Korea has risen sharply from 100 to 125, i.e. the nominal house price has increased by more than 25%.

Figure 14 South Korea’s house price index. Source: Trading Economics

South Korea’s household debt-to-GDP ratio rises

Coincidentally, South Korea’s household debt-to-GDP ratio also rose sharply after the outbreak. Of course, part of the reason may be related to the decline in GDP in the early stages of the outbreak. However, as GDP has rebounded rapidly, the household debt ratio shows no sign of falling. (Figure 15), it rose from 95 to 106 in two years, reflecting a substantial increase in household debt. In fact, data from CEIC (2022) shows that South Korea’s total household debt has surged from US$1,554.4 billion in April 2020 to US$1,868 billion in September 2021, an increase of more than 20%.

Figure 15 South Korea’s household debt to GDP ratio. Source: Trading Economics

Reasons for South Korea’s surge in household debt

The Korean government’s Financial Services Commission (2021) published an article on household debt management of South Korea on October 29, 2021, pointing out that high household debt has become the biggest economic risk in South Korea!

The article analyzes the reasons for the surge in household debt. The original texts are as follows:

Between 2016 and 2019, the government’s consistent efforts to manage the pace of household debt growth led to a gradual drop in the household credit expansion from 11.6 percent to 4.1 percent. However, this downward trend reversed its course in 2020 as the government began to implement expansionary fiscal and monetary policies in response to the COVID-19 pandemic. In particular, the household debt growth in 2020 was accelerated by a spike in the volume of credit-based loans as more and more individuals borrowed to invest in financial products amid a prolonged low interest rate environment. The rise in housing transactions as well as the increase in jeonse (a lump sum deposit for rent without monthly payment) prices also contributed to the surge in household debt in 2020.

Four countermeasures and repayment period is extended to 40 years

In order to manage household debt more effectively, the South Korean government rolled out four measures at the end of 2021, including limits in Debt Service Ratio (DSR) in which the maximum amount of loans is subject to household income. Interestingly, it is reported that the measures will provide special income calculation guidelines to facilitate young families to buy a home, including an extension of the maximum mortgage repayment period to 40-year. (Park, 2021; Jung Min-kyung, 2021)

For young adults struggling to get mortgages to buy homes due to their current income, the government will provide guidelines for banks that factor in future income that the borrowers can be expected to generate.

The new policy reflects the predicament of global central banks on mortgage policy. On the one hand, relaxing mortgage loan restrictions and/or cutting interest rates will attract more families and investors to buy houses, which can further push up house prices, and make it more difficult for young families to buy a home. On the other hand, tightening loan policies and/or raising interest rates, and/or even setting a ceiling on the ratio of loans to income, will make young people even more difficult to save enough downpayment to buy homes. Either relaxing or tightening the mortgage policy can do more harm than good to housing affordability.

The South Korean government tries to introduce a specific target policy, which is said to consider the expected future incomes of young home buyers. It sounds like the Permanent Income Hypothesis. Furthermore, it has introduced a 40-year repayment period, which is said to enable more young people to buy homes. However, a longer repayment period does not make housing more affordable, but monthly mortgage repayment affordable only. It incurs more interest cost, and it makes home ownership a mirage. Even if one can save enough money to pay downpayment for a home (or get government subsidy) as soon as one graduate at 25 years old, one will retire after repaying 40 years’ mortgage. The house will have to be reverse-mortgage back to the bank.

5. DTGR of the US

According to the Federal Reserve Bank of New York’s (FED NY, 2022) Household Debt and Credit Report 2021Q4, total household outstanding debt increased by $333 billion in the fourth quarter of 2021, a 2.2% increase from the third quarter of 2021 and was the largest increase since 2007 in both percentage and nominal value. Total household debt now stands at $15.58 trillion (Figure 16), an increase of $1 trillion in household debt in a year!

Figure 16 Total household debt in the United States in 2021 is $15.58 trillion. Source: Fed NY (2022)

US Mortgage Loans

Among them, mortgage debt accounted for the highest proportion (about 70%), totaling US$10.93 trillion, with a quarterly increase of US$258 billion or 2.4%. The amount of mortgage originations recorded an all-time high of over $4.5 trillion in a year! Figure 17 shows that in 2008–2019, the average quarterly amount of mortgage originations was only about $400 billion, but during the 2020–2021, the quarterly amount of mortgage originations soared to more than $1 trillion, an increase of more than doubled.

Figure 17 Mortgage Originations in the U.S. total $4.5 trillion in 2021. Source: Fed NY (2022)

Federal and Mortgage Rates

Since the outbreak of COVID in the United States in early 2020, the US Federal Reserve has not only cut interest rates sharply to 0.25% (Figure 18), but also launched QE4 at the same time to ensure liquidity.

Figure 18 The US Federal Reserve cut interest rates sharply to 0.25% in early 2020. Source: TradingEconomics

The reduction in federal interest rates naturally affects the mortgage rates of retail banks. Figure 19 shows that the 30-year mortgage interest rate in the United States has declined since 2019, and was below 3% in 2020–2021. Later, due to the sharp rise in inflation, the Federal Reserve announced that it will raise interest rates from March this year, and mortgage rate began to turn up in 2022.

Figure 19 MBA 30-year mortgage rates in the United States. Source: TradingEconomics

US House Price Increase

The chain of causation is clear. After the outbreak of COVID, central banks slashed interest rates, attracting buyers to borrow more to buy houses. It does not only increase mortgage loan growth, but it also increases household debt.

Figure 20 shows the annual increase in the FHFA house price index in the United States. Before the pandemic, the annual growth of house prices was average at about 6%. However, after 2020, house prices have started rising sharply to about 20%, which is a record.

Figure 20 shows the annual increase in the FHFA home price index in the United States. Source: TradingEconomics

Analyzing the association between household debts and housing prices in Hong Kong, Australia, New Zealand, South Korea and the United States, we found a clear pattern after the outbreak of COVID. All of them have experienced a sharp increase in household debt after the interest rate cut and/or the liberation of mortgage policy in 2020. Among them, the most alarming increases are in mortgage loans, which have driven the rise in house prices. This worldwide phenomenon supports the “Real Interest Rate Theory” (Yiu, 2009) on house prices by a natural experiment.

A global comparison can show the generalizability of the theory. The pandemic has played an experimental role for synchronizing interest rate cuts around the world. In just two years, household debts have risen sharply and globally.

However, when inflation has risen rapidly, countries have begun to increase interest rates. If the mortgage is in a long-term fixed interest rate, it may not be affected by the coming interest rate increase, but if the mortgage is in a floating rate, the coming interest rate hikes may bring more financial pressure on these families, especially in cities experiencing economic recession and high unemployment rates.


CEIC (2022) South Korea Household Debt, 2002–2021 | QUARTERLY | USD MN | CEIC DATA,

Corelogic (2022) CoreLogic Home Property Value Index — Monthly Indices, 31 January.

FED NY (2022) Household Debt and Credit 2021Q4, Federal Reserve Bank of New York, Feb.

Financial Services Commission (2021) Household Debt Management, October 29, South Korea Government.

Jericho, G. (2021) Australia’s house prices are disconnected from reality — and the RBA wants you to know it isn’t to blame, Grogonomics, The Guardians, September 15. /2021/sep/16/australias-house-prices-are-disconnected-from-reality-and-the-rba-wants-you-to-know-it-isnt-to-blame?CMP=fb_gu&utm_medium=Social&utm_source=Facebook&fbclid =IwAR1zgYKxk8GR6EMa6vXYgVXF4b4JOuNSTHzDYDG1ErBi5SEWeuZwSJxhzXM#Echobox=1631746131

Jung, Min-kyung (2021) S. Korea to soften mortgage rules for first-time buyers from July, The Korea Herald, June 21.

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Knight Frank (2021) Global House Price Index, 2021 Q3.

Maley, K. (2021) Once again, APRA turns up late to the house party, Financial Review, November 19. -late-to-the-house-party-20211116-p599al

Park, Han-na (2021) S. Korea to tighten mortgage rules to rein in household debt — 40-year mortgage loans to be introduced in H2 for young house buyers, The Korea Herald, April 29. http://www.koreaherald .com/view.php?ud=20210429000892

RBNZ (2020a) OCR reduced to 0.25 percent for next 12 months, Reserve Bank of New Zealand, March 16. -for-next-12-months

RBNZ (2020b) Reserve Bank Removes LVR Restrictions for 12 Months, Reserve Bank of New Zealand, April 30. for-12-months

RBNZ (2020c) Reserve Bank Proposes Reinstating LVR Restrictions, Reserve Bank of New Zealand, December 8.

RBNZ (2021a) Regulatory Impact Assessment: Reinstating Loan-to-Value Ratio Restrictions, Reserve Bank of New Zealand, February. /banks/macro-prudential/LVR/Reinstating-LVRs-Risk-Impact-Assessment-02–2021.pdf

RBNZ (2021b) Loan-to-Value Ratio Restrictions, Reserve Bank of New Zealand, August. valuation-ratio-restrictions

Yiu, C.Y. (2009) Negative Real Interest Rate and Housing Bubble Implosion — An Empirical Study in Hong Kong, Journal of Financial Management of Property and Construction 14(3), DOI: 10.2139/ssrn.1434312

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