Housing equity withdrawal, property bubbles and consumption

Abstract

At the peak of the recent property boom, housing equity withdrawal, or ?top-up" loans, accounted for around one-third of residential mortgage loans issued. This collateral-based lending was typically issued at a significant discount to other forms of personal lending, often at tracker rates. Following the collapse of the Irish housing market, the value of ?top-up" loans issued in 2011 was down 96 percent from 2006 - the peak year for this form of lending. This paper draws out some of the trends in housing equity withdrawal over the last decade, both in terms of the extent of lending that occurred and the reasons for borrowers taking out such loans. From a domestic demand perspective, the concern would be the extent to which this form of borrowing fed into domestic consumption and the longer-terms implications for Irish economic growth. In this context we show that equity withdrawal trends are strongly positively correlated with a number of demand measures, mainly related to spending on durables.