Background. The extended recession and stagnant housing market in the 1990s following the boom of the late 1980s resulted in more than half a million housing repossessions. This study explores the impact of unsustainable housing commitments on psychological well-being. We test the hypotheses that housing payment problems and housing arrears have adverse impacts on heads of households' psychological well-being over and above those caused by financial hardship more generally.

Method. Data came from the British Household Panel Survey 1991–2003 and the samples for analysis consist of: (1) 5651 male head of households producing 26618 person-year observations, and (2) 2534 female head of households producing 9091 person-year observations. Summary statistics and multivariate, fixed effects regression models are used. Mental health was measured by the 12-item General Health Questionnaire.

Results. For male heads of households housing payment problems and entering arrears have significant detrimental effects on mental well-being and for female heads of households longer-term housing payment problems and arrears have significant detrimental effects on mental well-being. The sizes of these effects are in addition to and larger in magnitude than those associated with financial hardship more generally. The net effects appear to be relatively stable over the time of the panel data.

Conclusions. This study provides evidence that housing payment problems have independent psychological costs over and above those associated with general financial hardship. The magnitude of the effect is similar to that shown for marital breakdown and job loss.