At the peak of the boom, €5.5bn of mortgage top-up loans were drawn down annually to fund luxury purchases and home extensions, according to research by the Central Bank.
As part of the Central Bank’s letter series, the bank has analysed the number of people applying for top-up mortgages or releasing equity built up in their homes, in a study entitled Housing equity withdrawal in Ireland: 2000 – 2011.
The research found that the value of equity release borrowing has collapsed in the last few years.
From peak borrowing in 2005-2006, when €5.5bn was drawn to down, to 2011 there has been a 97% decline in borrowing. The most recent figure reported in the Central Bank letter showed there was only €195m of top-up loans drawn down in 2011.
Self-employed heads of households withdraw larger amounts on average (€60,000 in 2010) when compared with employed heads of households (€47,000 in 2010). This points to housing equity as a potentially important source of credit for self-employed individuals.
Not all money withdrawn was used to fund businesses. The Central Bank estimated that two thirds of the value of housing equity withdrawal between 2000 and 2010 was reinvested in the same property. The money was used to fund repairs, maintenance, and extensions.
A further quarter was used for investment in other properties (holiday homes and buy-to-let). The remainder of the borrowing was used for education and paying down short-term debts.
The Central Bank found a strong correlation between trends in equity release and construction output in housing. This appears to be the primary channel through which equity withdrawal affected the domestic economy in recent years, the bank said.
The bank also found a link between equity withdrawal and consumer spending on luxury goods.
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