Luís Teles Morais, from Nova SBE, will present his research. 

Mortgage structure, household saving, and the wealth distribution

Mortgage repayments account for 25% of household saving flows in the Euro area. Much of this saving is not deliberate but arises from rigid mortgage structures: fixed amortization schedules induce wealth accumulation but limit consumption smoothing. I develop a life-cycle model where deviating from scheduled repayment is costly, generating large shifts in consumption and saving behavior, especially among younger and lower-income homeowners. In Euro area data, these households save substantially more than comparable renters, driven by principal repayment – except in the Netherlands, where flexible interest-only loans are available. I calibrate the model to Dutch data spanning a 2013 policy that tightened amortization requirements, exploiting this change to identify the repayment friction. The model replicates observed debt and wealth patterns across income groups and delivers three main results. First, mandatory amortization raises total saving but crowds out liquid wealth accumulation. Second, it increases the share of hand-to-mouth households by about 15 percentage points, amplifying consumption volatility and marginal propensities to consume. Third, welfare losses are substantial—equivalent to 2-3% of lifetime consumption—and concentrated among younger, lower-wealth households who value payment flexibility most. While mandatory amortization may promote financial stability, it does so at significant costs to household welfare, and leads to a more unequal distribution of financial wealth.