The riskiness of household debt increased as well: between 2010 and 2016, the share of debt held by highly indebted households—with debt-to-income (DTI) ratio above 4—increased from around a quarter to almost half. While most of that debt is held by richer households, the increase in DTI ratio among the lower income households was quite substantial as well, reaching almost 6.
There are several ways to classify household indebtedness. The approach used here is to classify ‘highly indebted’ households as those with debt-to-income ratios in the top 10 per cent of indebted households in a given survey year. Over the 10 years to 2014, most households in this group had a debt-to-income ratio above 550 per cent and as a group these households accounted for around 35–40 per cent of total household debt.
How did so many households in China and Australia end up with such a high DTI?
Since mortgage has a cap on debtors' DTI at around 55%, debtors with DTI>1 must have either taken large sums of additional non-mortgage debt, or have lost most of their income, after mortgage is approved? Could this happen on such large scale? What are the other possible causes of a country-wide high DTI?