New Research on Housing Equity Withdrawal in Ireland

Using data available to the Central Bank and the CSO, the Letter analyses housing equity withdrawal trends in recent years and considers the impact on the domestic economy. The key findings of the research are as follows:

• At the peak of the property boom from 2005 to 2006, €.5 billion of mortgage top-up loans were drawn-down annually. This form of housing equity withdrawal accounted for one-third of all loans issued and 15 per cent of new loan balances.
• By 2011, the value of equity release borrowing had fallen by 97 per cent, to just €95 million of top-up loans in 2011.
• Excluding very large loans (i.e. greater than €50,000), the average equity withdrawal loan ranged from €0,000 to €0,000 throughout the 2000s.
• At the peak of the property boom, there was an increasing trend for very large equity withdrawal loans (i.e. greater than €50,000). The bulk of this borrowing appears to have been invested in other properties (holiday homes and buy-to-let properties).
• Housing equity withdrawal is more common where the head of the household is less than 40 years-old. However, the average loan for this group is smaller (€0,000) when compared with older borrowers aged 40 or above (€3,000).
• Housing equity withdrawal is also more common where the head of the household works in Financial Services, the Public Sector or the Construction Sector.
• Self-employed heads of households withdraw larger amounts on average (€60,000 in 2010) when compared with employed heads of households (€7,000 in 2010). This points to housing equity as a potentially important source of credit for self-employed individuals.
• Using self-reported loan purpose data, it is estimated that two-thirds of the value of housing equity withdrawal between 2000 and 2010 was re-invested in the same property in the form of housing repair, maintenance and upgrades. 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.
• Unsurprisingly, given the large proportion of housing equity withdrawal re-invested in property, there is 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.
• Trends in housing equity withdrawal are also highly correlated with consumer spending on luxury goods, such as cars, and large-scale consumer durable goods, such as furniture.