The far higher gross debt-to-income ratio of Danish families compared with families in other countries has attracted considerable attention from international organizations, credit rating agencies and a number of observers. In a report from November 2012, the European Commission (2012) describes the level of family indebtedness as unsustainable, and in the press release from Fitch, a credit rating agency, in which it affirms Denmark at AAA – Fitch (2012) – the level of family indebtedness is referred to as exceptional. As a counterpart of the substantial debt, Danish families also hold considerable assets, not least in the form of individualized pension wealth. Concerns have been expressed about families’ ability to service their debt in the event of rising interest rates or higher unemployment, the considerations being that the families with large debt are not necessarily the ones that hold substantial assets. In continuation of a previous article on the wealth and debt of Danish families, cf. Andersen et al. (2012), the possible threat to financial stability in Denmark from the income and debt of Danish families is examined at family level. The families’ overall balance sheet is good and has contributed to Denmark’s current-account surpluses for many years.

the threat to financial stability from Danish families’ debt and debt structure is limited. The assessment is based on the share of the debt held by families with particularly tight personal finances, among other factors. Indeed, the credit institutions have suffered only moderate losses on private customers in recent years. Most families have robust finances and, if they reduce consumption or savings, are resilient to negative events such as a strong increase in interest rates or a protracted period of unemployment, although this may entail considerable lifestyle changes. This assessment does not take into positive account that a rise in interest rates is very likely to go hand in hand with economic recovery and hence better opportunities for families to increase their income by seeking further employment. This article contains a detailed analysis of the number of families that will encounter financial problems in the event of interest-rate increases, unemployment, or expiry of the deferred-amortization period, and whether this will entail losses on lending by credit institutions. The basis of the sensitivity analysis is how the individual family’s income after tax, interest and redemptions and fixed expenditure, i.e. the disposable amount, changes if interest rates increase by 5 percentage points, or in the event of higher debt redemptions or a temporary loss of income due to a period of three or six months’ unemployment for the family’s principal earner.