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Housing Equity Withdrawal Trends in Ireland

Author

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  • Lydon, Reamonn

    (Central Bank of Ireland)

  • O'Leary, Brídín

    (Central Bank of Ireland)

Abstract

This article uses a unique data set to track changes in aggregate net housing equity withdrawal between 1978 and 2012. The analysis covers the peak years of the recent housing boom when it is estimated that net equity withdrawal reached a peak of €8 billion, or 10 per cent of disposable income. This was driven by three factors: first, there was a significant increase in the propensity for existing homeowners to take out top-up loans during this period; second, the combined effect of large numbers of transactions and booming house prices meant that sellers in the final link of a property-transaction chain, i.e. those not purchasing another property, withdrew substantial equity upon selling; and third, relative to equity withdrawals, the rate of equity injections declined due to a fall in deposits from first-time buyers and a decline in the rate of amortisation. The latter was driven by the increased prevalence of interest-only loans and significantly longer loan-terms. The dramatic collapse in the Irish property market means that all of these factors have been reversed, moving the household sector from one of net equity withdrawal to net equity injection.

Suggested Citation

  • Lydon, Reamonn & O'Leary, Brídín, 2013. "Housing Equity Withdrawal Trends in Ireland," Quarterly Bulletin Articles, Central Bank of Ireland, pages 90-103, January.
    • Handle: RePEc:cbi:qtbart:y:2013:m:01:p:90-103
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    File URL: https://centralbank.ie/docs/default-source/publications/quarterly-bulletins/qb-archive/2013/qb1-2013.pdf?sfvrsn=6#page=92
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    References listed on IDEAS

    as
    1. Cussen, Mary & O'Leary, Brídín & Smith, Donal, 2012. "The Impact of the Financial Turmoil on Households: A Cross Country Comparison," Quarterly Bulletin Articles, Central Bank of Ireland, pages 78-98, April.
    2. Reinold, Kate, 2011. "Housing equity withdrawal since the financial crisis," Bank of England Quarterly Bulletin, Bank of England, vol. 51(2), pages 127-133.
    3. Kennedy, Gerard & McIndoe-Calder, Tara, 2012. "The Irish Mortgage Market: Stylised Facts, Negative Equity and Arrears," Quarterly Bulletin Articles, Central Bank of Ireland, pages 85-108, February.
    4. Carl Schwartz & Tim Hampton & Christine Lewis & David Norman, 2006. "A Survey of Housing Equity Withdrawal and Injection in Australia," RBA Research Discussion Papers rdp2006-08, Reserve Bank of Australia.
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    Cited by:

    1. Le Blanc, Julia & Lydon, Reamonn, 2019. "Indebtedness and spending: What happens when the music stops?," Research Technical Papers 14/RT/19, Central Bank of Ireland.
    2. McInerney, Niall, 2019. "Macroprudential Policy, Banking and the Real Estate Sector," MPRA Paper 91777, University Library of Munich, Germany.
    3. Clancy, Daragh & Cussen, Mary & Lydon, Reamonn, 2014. "Housing market developments and household consumption," Economic Letters 09/EL/14, Central Bank of Ireland.
    4. Tarne, Ruben & Bezemer, Dirk & Theobald, Thomas, 2022. "The effect of borrower-specific loan-to-value policies on household debt, wealth inequality and consumption volatility: An agent-based analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    5. Clancy, Daragh & Cussen, Mary & Lydon, Reamonn, 2014. "Housing Market Activity and Consumption: Macro and Micro Evidence," Research Technical Papers 13/RT/14, Central Bank of Ireland.

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