The rapid development of the Chinese housing market has increased the financial burden on urban households, and has exposed the national banking system to higher risks of a property bubble. To stave off the pressure of potential foreclosures and even a financial crisis brought on by the country’s growing housing bubble, a series of policies were enacted last year to make it harder for homebuyers to take out mortgages.

To gain a fuller idea of the amount of debt incurred by the country’s homebuyers, the China Household Finance Survey (CHFS), which I founded, carried out sample surveys across the country in which we developed our knowledge of homeowners’ incomes and their respective mortgage loans. Our goal was to see how healthy the mortgage market is and how sustainable it is for families to service their mortgage repayments. From data collected on tens of thousands of field trips, we identified the proportion of the population most likely to default on their mortgages, and assessed the potential impact of those defaults. The results make grim reading for a vast number of less-well-off families struggling to keep up with their repayments.

Outstanding mortgage loans in China more than doubled from a national total of 7.3 trillion yuan ($1.07 trillion) at the end of 2011 to 16.6 trillion yuan by the first half of last year. Growth was particularly strong in the second half of 2014, when the government eased its controls on housing purchases, which in turn led to more mortgages being granted well into 2015.

According to CHFS data, the proportion of mortgage-paying Chinese families rose from just 6.9 percent in 2011 to 9.4 percent by 2015 — a trend inconsistent with the much more pronounced rise in mortgage lending over the same period. We see three reasons for this discrepancy: First, the country has witnessed a sharp increase in housing prices; second, down payments fell on high-priced properties; and third, households with existing mortgages have started buying up additional properties.

Starting from the second half of 2014, the government began to relax policy regulations on the housing market’s credit infrastructure. This included softer mortgage controls on second-time homebuyers, lower interest rates, and lower down payments, all of which geared the market toward rapid growth. According to a survey by Shanghai-based firm Haitong Securities, mortgage-backed housing sales as a proportion of total property market transactions grew from 19 percent in 2011 to 39 percent in 2015.

If individual households are facing higher mortgage ratios and heavier debts, will this jeopardize mortgage safety in China? - Gan Li, professor

CHFS data also shows that between 2011 and 2013, the growth in outstanding mortgages was driven largely by first-time buyers. Six years ago, around 30 million Chinese households owed 7.4 trillion yuan. The sum owed by these same people rose by 600 billion to 8 trillion yuan by 2013. However, over the same period, the total outstanding mortgage debt increased by a much larger 2.5 trillion yuan — indicating a vast influx of new borrowers into the property market.

Conversely, our figures also show that mortgage-paying families in 2013 borrowed another 2.8 trillion yuan over the following two years, while first-time buyers registered a much lower 1.6 trillion yuan. Recently, then, mortgage growth has been propelled more by families buying additional properties. Indeed, in the last three years, one-third of new mortgage loans were issued to people who already owned property.

Some key questions emerge from these trends. If individual households are facing higher mortgage ratios and heavier debts, will this jeopardize mortgage safety in China? Will it lead to more mortgage defaults? To answer these questions, we need to look at the solvency of households with outstanding loans.

Our team places Chinese households into five income groups: low, mid-to-low, middle, mid-to-high, and high. The low and mid-to-low income groups have limited purchasing power and are generally unable to afford mortgages. Yet mid-to-high earners are finding it easier and easier to secure credit loans. That’s especially true in the high-income bracket: From 2013 to 2015, this group accounted for 66 percent of total mortgage loans issued in China, while families from the mid-to-high income group accounted for just 17 percent.

In order to understand how well families were coping with their mortgages, my survey team divided their yearly mortgage repayments by their disposable income. The resulting ratio showed that families risked insolvency whenever more than 75 percent of their disposable income was spent on monthly mortgage repayments.

Clearly, it is better to have a low ratio than a high one, and indeed most high-income households only spent around 25 percent of disposable income on their mortgages. High earners are the main stabilizers keeping mortgage loans secure in China. Households in this group are more active in the property market and more creditworthy, allowing them to take out multiple large mortgages and still have enough disposable income to be comfortable — although a minority do still owe a considerable amount on other loans and therefore run the risk of defaulting.

Low and medium-low income groups are thus at greatest risk of defaulting on their mortgages. Our data indicates that 7.8 percent of all mortgage-bearing households — around 3 million in total — face the most danger of defaulting, and most of these are squarely at the poorer end of the spectrum. Of this number, less than 7 percent can rely on existing financial assets to service their mortgage debts, while the remaining 93 percent must urgently find new sources of income or face foreclosure. But even among these homeowners, 7 in 10 people do not have enough money to keep up with their repayments for more than a year.

Today, China’s private property market — one that is less than three decades old — is often decried as an unsustainable bubble which, sooner or later, will burst, driving investors into foreclosure. While it is difficult to predict exactly how this situation will play out, the figures above should send a chill down the spines of poorer mortgage-holders struggling to get by. The economic pitfalls of the future — slowing economic growth, rising unemployment, and declining investor confidence — are much more likely to bring the bailiffs knocking on the doors of the poor before anyone else.

A Chinese version of this article first appeared on The Paper, Sixth Tone’s sister publication.

(Header image: Pedestrians walk past a building in Guangzhou, Guangdong province, Nov. 22, 2013. Brent Lewin/Bloomberg via Getty Images/VCG)