The Burrow
Oct 25, 2023
For many people, owning a home is a long-term financial goal. Oftentimes however, purchasing a home outright is impractical, and in order to get around this many people choose to take out a home loan, which they can then repay over time.
Such a loan might be the largest financial investment – and the most debt – you ever take on in your life, and can often take decades to repay in full. But just how exactly does household debt compare to incomes around the world, and just how much debt does everyone have?
As home loan experts, we decided to look into just that! We examined data for 33 different countries around the world and compared them based on the ratio of household debt to annual income.
The keen eyed among you may notice that we have done this before, in 2021, so stay tuned to find out how things have changed over the past two years.
Denmark had the highest household-debt-to-income ratio of all the nations we looked at, with a reported debt of 252.18%. For a two-person household earning the average combined annual income of AU$162,768.60, this amounts to a debt of AU$410,475.54.
Norway was only slightly behind Denmark on our list, with a debt-to-income ratio of 246.79%. Assuming an average income (AU$165,389.08 combined), a two-person household in Norway would have debt totalling AU$408,161.56.
Although Switzerland only had the third highest debt-to-income ratio – 227.41% – the relatively high average income of AU$197,121.38 gives the Swiss the largest monetary amount of debt on our list, with a staggering average of AU$445,276.68 for a household of two.
Mexican households were the least in debt on our list, with an average debt of only 25.62% the annual household income (AU$19,930.72 for a house of two). This indicates that the average Mexican house of two has AU$5,107.03 in debt.
Latvia had the second-lowest debt-to-income ratio of the nations we looked at, with households having debt equal to 37.20% of their annual income. With an average annual income for two people of AU$42,447.45, that comes to a debt of AU$15,789.23.
Coming in third-least indebted on our list, Hungarian households owed money equal to 45.08% of their annual income. For a hypothetical house of two earning the average annual income (AU$39,422.58), that comes to AU$17,772.53 in debt.
| Nation | Household debt as a percentage of household annual disposable income | Average adjusted annual income of a two-person household (AUD) | Calculated debt of an average two-person household (AUD) |
| Denmark | 252.18% | $162,768.60 | $410,475.54 |
| Norway | 246.79% | $165,389.08 | $408,161.56 |
| Switzerland | 227.41% | $197,121.38 | $448,276.68 |
| Netherlands | 222.11% | $130,718.46 | $290,344.79 |
| Australia | 211.45% | $124,242.37 | $262,713.47 |
| South Korea | 206.48% | $78,135.23 | $161,335.34 |
| Sweden | 201.59% | $137,690.95 | $277,566.08 |
| Luxembourg | 193.19% | $210,054.80 | $405,798.56 |
| Canada | 185.19% | $108,333.31 | $200,617.16 |
| Finland | 154.61% | $123,518.64 | $190,976.13 |
| United Kingdom | 148.41% | $112,025.20 | $166,259.95 |
| Portugal | 126.50% | $53,986.71 | $68,291.24 |
| France | 125.62% | $97,914.82 | $122,999.81 |
| Japan | 122.06% | $96,457.09 | $117,732.73 |
| New Zealand | 120.70% | $104,224.78 | $125,797.22 |
| Belgium | 119.76% | $112,831.97 | $135,132.98 |
| Ireland | 111.41% | $128,155.76 | $142,779.10 |
| United States of America | 101.84% | $164,811.43 | $167,837.53 |
| Spain | 101.63% | $69,676.38 | $70,812.53 |
| Germany | 101.51% | $118,756.89 | $120,548.22 |
| Austria | 94.35% | $120,062.76 | $113,274.58 |
| Greece | 92.69% | $45,599.41 | $42,265.42 |
| Italy | 90.76% | $80,312.42 | $72,889.51 |
| Slovakia | 85.36% | $48,302.97 | $41,230.19 |
| Estonia | 79.37% | $59,967.53 | $47,594.61 |
| Czechia | 77.31% | $53,073.99 | $41,030.36 |
| Chile | 67.40% | $31,687.43 | $21,358.11 |
| Poland | 59.08% | $41,150.62 | $24,313.83 |
| Slovenia | 51.99% | $62,624.49 | $32,560.62 |
| Lithuania | 45.44% | $52,620.72 | $23,912.86 |
| Hungary | 45.08% | $39,422.58 | $17,772.53 |
| Latvia | 37.20% | $42,447.45 | $15,789.23 |
| Mexico | 25.62% | $19,930.72 | $5,107.03 |
By having a closer look at the data, we can extrapolate two key trends here:
People in countries with higher incomes tend to borrow more money on average.
This is true not just in a monetary sense (looking at the calculated debt), but also if we look at income compared to the debt-to-income ratio.
The three highest earners on our list (Luxembourg, Switzerland and Norway) all have debt-to-income ratios around the 190%-250% mark – they have debt totalling about twice their annual income.
The inverse is true as well. The three lowest earners on our list (Mexico, Chile and Hungary) all have debt-to-income ratios between 25% and 70%.
However, there are a few obvious exceptions to this rule. Despite being one of the highest earners, the United States of America only has an income-to-debt ratio of about 100% – half of what we could expect based on the other data.
Similarly, people in Portugal and South Korea both have abnormally high levels of debt considering their low-middle income. South Korea in particular borrows money at the same rate as some of the top earners while only getting paid about half as much!
While household debt is a large and complex issue, there are some key contributing factors that we can look at that may help explain this trend.
A 2011 study by the University of New England concluded that – at least for Australia – GDP is the most important determinant of household debt.1 This appears to check out for the data here as well – nations with high debt-to-income ratios tend to also have higher GDP per capita, and vice versa.2
Home loans likely play a big role in determining household debt
As we mentioned at the start of this piece, for many people, taking out a home loan may be the largest financial commitment you make in your lifetime. It stands to reason then, that if more people take out home loans, the average debt-to-income ratio will increase.
Let’s look at Europe as an example – when we map out the debt-to-income ratio and the percentage of the population that has a mortgage, the result looks like this:
Source: OECD Data and Statista
While these maps are not identical, there is clearly a strong correlation between these two statistics. Scandinavia has both a high debt-to-income ratio and a high rate of mortgage holders, while central-eastern Europe has a much lower rate of mortgage holders and comparatively little household debt.
The last time we looked at household debt data (in 2021), the most recent figures available were from 2019. Two years on, we now have access to 2021 data. So, what changed exactly over those two years?
| Nation | Difference in household debt expressed as a percentage of annual household disposable income | Difference in average adjusted annual income for a two-person household (AUD) | Difference in calculated debt of an average two-person household (AUD) |
| Ireland | -19.26% | -$4,858.93 | -$31,031.19 |
| Netherlands | -13.55% | -$4,580.14 | -$28,499.90 |
| Chile | -5.56% | -$4,530.86 | -$5,066.75 |
| Greece | -5.14% | -$4,171.00 | -$6,424.97 |
| New Zealand | -5.00% | -$1,920.56 | -$7,627.47 |
| Denmark | -4.49% | $2,655.87 | -$485.79 |
| Slovenia | -3.33% | -$1,492.30 | -$2,908.79 |
| Spain | -3.28% | -$7,757.64 | -$10,423.50 |
| United States of America | -2.66% | -$6,513.85 | -$11,197.39 |
| Poland | -1.72% | $185.23 | -$593.13 |
| Norway | -0.17% | -$22,442.89 | -$55,708.28 |
| Czechia | 1.05% | -$525.62 | $155.30 |
| Australia | 1.38% | -$6,027.90 | -$10,945.26 |
| Lithuania | 1.74% | $1,614.09 | $1,622.97 |
| Sweden | 1.84% | $1,712.42 | $6,026.24 |
| Italy | 2.37% | -$5,079.79 | -$2,588.67 |
| Slovakia | 2.40% | -$64.32 | $1,120.14 |
| Estonia | 2.94% | -$131.53 | $1,660.90 |
| Belgium | 2.97% | -$5,113.13 | -$2,615.10 |
| Luxembourg | 3.08% | $23,357.06 | $50,867.50 |
| France | 3.49% | -$6,611.07 | -$4,657.65 |
| Hungary | 3.59% | -$2,553.42 | $356.68 |
| Austria | 4.56% | -$7,206.57 | -$1,000.55 |
| Switzerland | 4.84% | -$5,619.47 | -$2,963.61 |
| Germany | 5.30% | -$2,062.44 | $4,307.94 |
| Finland | 5.63% | $477.20 | $7,668.99 |
| United Kingdom | 6.76% | $1,274.92 | $9,382.19 |
| Canada | 8.75% | -$8,579.54 | -$5,663.88 |
| Japan | 15.04% | -$3,930.53 | $10,297.89 |
| South Korea | N/A | N/A | N/A |
| Portugal | N/A | N/A | N/A |
| Latvia | N/A | N/A | N/A |
| Mexico | N/A | N/A | N/A |
Note: Countries marked as N/A were not part of our research in 2021
Perhaps most noticeably, the majority of the nations we looked at saw a decrease in average incomes for a two-person household. One possible explanation for this is global economic shutdown resulting from the COVID-19 pandemic.
Ireland and the Netherlands saw the largest drop in their debt-to-income ratio overall, reducing by 19.26% and 13.55% respectively. Meanwhile, people in Japan saw the largest increase in their debt-to-income ratio, at 15.04%
Overall, across all nations present in both the 2021 study and this study, the debt-to-income ratio increased by an average of 0.47%.
Compared to the other nations on the list, Australia has relatively high household debt. In fact, households in the land down under owe 211.45% of their annual income in debt – making the nation the fifth highest overall for household debt.
For reference, the United States has a debt-to-income ratio of 101.84%; New Zealand has a debt-to-income ratio of 120.70%; and Canada has a debt-to-income ratio of 185.19%.
This means, on average, two-person households in Australia have a debt of AU$262,713.47. If this seems high, remember that this could include mortgage, investor debt, loans and credit card debt.
Compare the Market’s General Manager of Money, Stephen Zeller, said it’s never a bad time to evaluate your options and make sure you are getting a good deal when it comes to your home loan.
“Whether you are a first home buyer or refinancing your mortgage for a third time, you don’t want to just settle for the first option you see,” Zeller explained.
“Considering how large an impact a home loan can make on your overall debt – and your future – it is important to shop around and make sure you are getting the best deal for your individual circumstances.
“Even what may seem to be a minor improvement in your interest rate could have a major impact on your finances, saving you thousands of dollars over the course of a loan.
“If you are shopping for a home loan in Australia, our free online service can help you compare your options and apply for a loan, all in one place.
“A little bit of time and effort now can save you from considerable financial strain in the long term.”
Household debt as a percentage of disposable income data and average net national income per capita data were used to calculate an estimated value for household debt for a house of two people.
All prices were converted from USD on the 4th of September 2023 using XE currency converter.
