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Housing Equity Withdrawal, Property Bubbles and Consumption

  • Lydon, Reamonn

    (Central Bank of Ireland)

  • O'Hanlon, Niall

    (Central Statistics Office)

At the peak of the Irish property boom in the rst decade of the 2000s, housing equity withdrawal, or \top-up" loans, accounted for one-third of residential mortgage loans issued. This collateral-based lending was typically issued at a signi cant 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 97 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.

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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 05/RT/12.

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Date of creation: Aug 2012
Date of revision:
Handle: RePEc:cbi:wpaper:05/rt/12
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  1. Herrala, Risto, 2010. "Credit constraints and durable consumption," Research Discussion Papers 15/2010, Bank of Finland.
  2. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2012. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Department of Economics, Working Paper Series qt6px1d1sc, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Vladimir Klyuev & Paul S. Mills, 2006. "Is Housing Wealth An 'ATM'? the Relationship Between Household Wealth, Home Equity withdrawal, and Saving Rates," IMF Working Papers 06/162, International Monetary Fund.
  4. Martin Browning & Thomas Crossley, 2001. "The lifecycle model of consumption and saving," IFS Working Papers W01/15, Institute for Fiscal Studies.
  5. Aoki, Kosuke & James Proudman & Gertjan Vlieghe, 2003. "House prices, consumption, and monetary policy: a financial accelerator approach," Royal Economic Society Annual Conference 2003 7, Royal Economic Society.
  6. Andrew Benito, 2009. "Who Withdraws Housing Equity and Why?," Economica, London School of Economics and Political Science, vol. 76(301), pages 51-70, 02.
  7. Hogan, Vincent & O'Sullivan, Pat, 2007. "Consumption and House Prices in Ireland," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2007(3-Autumn), pages 46-61.
  8. Janine Aron & John Muellbauer, 2006. "Housing Wealth, Credit Conditions and Consumption," CSAE Working Paper Series 2006-08, Centre for the Study of African Economies, University of Oxford.
  9. Addison-Smyth, Diarmaid & McQuinn, Kieran & O' Reilly, Gerard, 2008. "Estimating the Structural Demand for Irish Housing," Research Technical Papers 1/RT/08, Central Bank of Ireland.
  10. Kennedy, Gerard & McQuinn, Kieran, 2012. "Why are Irish house prices still falling?," Economic Letters 05/EL/12, Central Bank of Ireland.
  11. Ebner, André, 2013. "A micro view on home equity withdrawal and its determinants: Evidence from Dutch households," Journal of Housing Economics, Elsevier, vol. 22(4), pages 321-337.
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