Why do households participate in the loan moratorium in Hungary? Theoretical and empirical considerations

In order to mitigate the economic effects from the COVID-19 epidemic, a moratorium on loan repayments was introduced in several countries, including Hungary. Essentially, a loan moratorium provides additional finance for participants, allowing theories of both credit demand and consumption to be tested on debtors’ decisions as to whether or not they participate in the programme. In this paper, we use a linear probability model on the Hungarian survey data to examine the driving factors behind the households’ decision to participate in the scheme. Our results show that the younger debtors and those with more children are more likely to utilise the programme. Stretched financial situations, i.e., lower incomes, lower savings and higher payment-to-income ratios, increase the probability of continued participation as well. The chance of participating in the scheme also increases significantly when a household has faced borrowing constraints over the past two years, i.e., it has not been or only partially been able to satisfy its credit demand.