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The income distribution and the Irish mortgage market

Author

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  • Lydon, Reamonn

    (Central Bank of Ireland)

  • McCann, Fergal

    (Central Bank of Ireland)

Abstract

In this Letter we study the evolution of the prevalence of groups of households from across the population income distribution in the Irish mortgage market. We document a period of financial liberalization between 1994 and 2007, where the share of new mortgages issued going to those in the top income quintile fell from 57 to 27 per cent, while those in the middle quintile increased their share from 13 to 29 per cent. The impact of the recent crisis is shown to have had a pronounced impact in the Previous-Owner mortgage market, where negative equity has impeded many households from purchasing property with a second or subsequent mortgage: the share of the top income quintile in this market segment has risen from 27 to 65 per cent in the period 2007 to 2014, marking a significant reversal relative to the pre-2007 period. The Buy to Let segment is shown to be composed predominantly of those at the top of the income distribution, with little variation across the 1994-2014 period. Finally, higher-income households are shown to borrow with higher Loan to Value but lower Loan to Income mortgages in all periods.

Suggested Citation

  • Lydon, Reamonn & McCann, Fergal, 2017. "The income distribution and the Irish mortgage market," Economic Letters 05/EL/17, Central Bank of Ireland.
    • Handle: RePEc:cbi:ecolet:05/el/17
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    References listed on IDEAS

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    1. Brunetti, M. & Ciciretti, R. & Djordjevic, Lj., 2016. "The determinants of household’s bank switching," Journal of Financial Stability, Elsevier, vol. 26(C), pages 175-189.
    2. Lawless, Martina & Lydon, Reamonn & McIndoe-Calder, 2015. "The Financial Position of Irish Households," Quarterly Bulletin Articles, Central Bank of Ireland, pages 66-89, January.
    3. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1449-1496.
    4. Kinghan, Christina & McCarthy, Yvonne & O'Toole, Conor, 2016. "The Effects of Macroprudential Policy on Borrower Leverage," Economic Letters 08/EL/16, Central Bank of Ireland.
    5. Kelly, Robert & O'Malley, Terence & O'Toole, Conor, 2015. "Designing Macro-prudential Policy in Mortgage Lending: Do First Time Buyers Default Less?," Research Technical Papers 02/RT/15, Central Bank of Ireland.
    6. Keys, Benjamin J. & Pope, Devin G. & Pope, Jaren C., 2016. "Failure to refinance," Journal of Financial Economics, Elsevier, vol. 122(3), pages 482-499.
    7. Kelly, Jane & Lydon, Reamonn, 2017. "Home purchases, downpayments and savings," Economic Letters 02/EL/17, Central Bank of Ireland.
    8. Manuel Adelino & Antoinette Schoar & Felipe Severino, 2016. "Editor's Choice Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class," The Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1635-1670.
    9. Coates, Dermot & McNeill, Joe & Williams, Brendan, 2016. "Estimating Cash Buyers and Transaction Volumes in the Residential Property Sector in Ireland, 2000-2014," Quarterly Bulletin Articles, Central Bank of Ireland, pages 68-81, July.
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    Cited by:

    1. Kelly, Jane & Le Blanc, Julia & Lydon, Reamonn, 2018. "Pockets of risk in European Housing Markets: then and now," Research Technical Papers 12/RT/18, Central Bank of Ireland.
    2. O'Toole, Conor & Slaymaker, Rachel, 2020. "Review of the Rebuilding Ireland Home Loan scheme," Research Series, Economic and Social Research Institute (ESRI), number RS104.
    3. Corrigan, Eoin & O'Toole, Conor & Slaymaker, 2020. "Credit demand in the Irish mortgage market: What is the gap and could public lending help?," Papers WP671, Economic and Social Research Institute (ESRI).
    4. Gaffney, Edward, 2018. "Residential property price segments and mortgage finance," Financial Stability Notes 11-18, Central Bank of Ireland.
    5. Eoin Corrigan & Daniel Foley & Kieran McQuinn & Conor O’Toole & Rachel Slaymaker, 2019. "Exploring Affordability in the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, vol. 50(1), pages 119-157.
    6. Gaffney, Edward, 2018. "Residential property price segments and mortgage finance," Financial Stability Notes 11/FS/18, Central Bank of Ireland.
    7. Disch, Wendy & Slaymaker, Rachel, 2023. "Housing affordability: Ireland in a cross-country context," Research Series, Economic and Social Research Institute (ESRI), number RS164.

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