An Taoiseach Enda Kenny might be a little confused about whether or not we did in fact all party during the boom – variously proclaiming that “people went mad” borrowing during the boom but also that “we are not responsible” for the ensuring crisis – but a new report published by the Central Bank of Ireland shows that those over 40 years of age and employed in the education sector obtained the highest average-value equity release loans during the boom period 2005-2007, an average of €76,099 in 2005. In other words, it was mature teachers who partied hardiest and who went on spending sprees using money borrowed on the never-never.
Equity release is a term used to describe borrowing secured on the unencumbered value of your home, so if you obtained a €200,000 mortgage to buy a €200,000 home and the home then increased in value by €50,000, you might have subsequently borrowed an additional €50,000 secured on the increased value. Typically in Ireland, the interest rate on equity release loans was 2-4% cheaper than unsecured lending, so you might have obtained an equity release loan of €25,000 to buy a car and pay 3% per annum, but if you obtained an unsecured car loan from the bank it might cost you 5-7% per annum, so equity release lending was obviously popular if you had a house.
To put the partying in context, for the first half of 2012, banks in Ireland have lent an overall total of €1.1bn for mortgages, mostly to first time buyers and movers, but also including top-ups and equity release. Back in 2006, banks lent a staggering €5.5bn (at least) for equity release alone, and whilst most of it – 91% in fact – was reinvested in property, a significant proportion went on large-scale consumer durables like furniture and cars. And of course there was consumer spending on everything from holidays to handbags.
In the property boom peak 2006-2007, it was householders aged 20-29 years of age who worked in Financial Services who were mostly likely to obtain equity release loans, but it was the over-40s working in Education who obtained the biggest individual loans. It should be said that householders working in Education were least likely to obtain equity release loans in the first place, but when they did get them, Boy were they the biggest! Also by 2007, farmers were obtaining loans at the same average level as teachers.
The report from the Central Bank is co-authored by the CSO’s Niall O’Hanlon – he’s the chap behind the monthly house price index – and the Bank’s own Reamonn Lydon.The report – from which the table and graph above are extracted – is well worth a read as it examines in a very clear format the recent history of lending and property prices. The report is noteworthy for reaching what you might have thought was a rational conclusion, but one which is at odds with previous Irish research. “Hogan and O’Sullivan conclude that the marginal propensity to consume out of housing wealth is essentially zero.” (p. 47). This conclusion contrasts with the results from our own analysis, which shows that housing equity withdrawal plays a significant role in explaining various types of economic activity, most notably residential construction and motor and furniture sales.”
File under stating the bleeding obvious.
From the conclusion section-link above.
“We show that, in line with the predictions of the life-cycle model, equity withdrawal borrowers are likely to be younger households that want to borrow against rising incomes. An important challenge from a macro-economic perspective is the extent to which income expectations at the time of the loan origination might not be realised in the medium-term.”
Maybe just maybe that’s because they qualify for the loan !
Older people resort to reverse mortgages,new entrants are normally getting their foot on the ladder and maxed out…..
The report completely ignores capital appreciation and the feel good factor involved when a comparable house sells for double what your own mortgage is.While income growth expectations are relevant the intangible “belief” shared amongst the vast majority of pundits,economists,experts bankers etc. was for a soft landing.
The property porn industry in Ireland coupled with predatory lending was ignored-but thanks to the authors for pointing out the correlation during a epic boom between spending/consumption and equity releases.
What a misleading, factually dodgy, agenda seting headline. More Evening Herald than Financial Times!
I’m surprised at you NWL. This headline looks like it’s from the IBEC/ISME/SFA/COC PR play book of public sector bad, private sector good.
Why pick the biggest amount rather than the numbers of loans to reflect who partied hardest?
“In the property boom peak 2006-2007, it was householders aged 20-29 years of age who worked in Financial Services who were mostly likely to obtain equity release loans, but it was the over-40s working in Education who obtained the biggest individual loans”
A headline to more accurately reflect the report would have been:
Youngsters in the financial service sector, (who should have known better), took out the most loans.
The over 40’s were likely to get bigger loans simply because they were likely to smaller mortgages and more of the mortgage paid down. No surprise there.
“Also by 2007, farmers were obtaining loans at the same average level as teachers.”
If you have to go tabloid why not at least a factual headline that Financial Sector, Farmers and Teachers partied hardest.
Even better headline: Crowd of private sector idiots threw loans to all and sundry and are still partying on fat pensions.
P.S. I don’t and never have worked in the public sector but I’m sick of this rewriting history constantly bashing people who didn’t land us in this mess.
Hi NWL, no defence of your Evening Herald style headline.
Can we take it you’ll be aiming higher in future…FT headline standard hopefully?
It appears that the Benchmarking ATM simply wasn’t generous enough for some.
The bit I don’t understand in these figures is why the equity release went up considerably in 2011. Are people selling/re-mortgaging their homes in desperation, or are all the retired teachers simply packing up and moving to the Mediterranean permanently.
The public sector bashing continues.
What is your problem with teachers?
Had you a bad experience in education? The teachers didn’t land us in this mess.
The benchmarking process was driven by private sector wage rates.
It was a crap process but it didn’t bankrupt the country.
Go after the real problem, a crowd of private sector idiot bankers/lawyers/newspaper owners/professionals from posh private schools went after mega bonuses.
As you have probably noticed none of them are in jail.
Dog not eating dog……
I’m tired of paying for your pension, and then paying for the banks because you won’t pay back the loans you took out on your house.
The ascendancy cannot exist by itself; it needs support. Critically, it needs the support of the educated upper middle classes. The teaching profession comprises the single largest group in this supporting class.
Teachers, public servants, and “corpse-feasting” professionals continue to support the Givernment because they are living relatively large at the expense of the rest of us. The problem is systemic, systemic, systemic.
Hopefully it won’t require another famine, revolution or catastrophe to shift things, but the very first thing that is required for change is for certain people to start owning up to things they know are wrong, regardless of who else is or isn’t being prosecuted at the moment.
“The teaching profession comprises the single largest group in this supporting class.”
Care to back this claim with a tweetch of data…….
A little focus would help your case….a blunderbuss approach will get you nowhere.
I’d suggest you start at the top and work down….
We have the most expensive politicians, judges, senior managers, lawyers, doctors, consultants, auditors, accountants etc etc…..mostly folks who work in the private sector…
How about all the folks at the top cut their fees, charges and salaries and expenses….now that’s a campaign I can support…
Cheat sheets or cliff notes for those not inclined to wade thru 30 odd pages of abstract wonkish nonsense,ya think cheap and loose credit,lax or no underwriting standards,over reliance on asset appreciation may have been a factor…the reliance on borrowers statements is troubling.Its like the doctor asking how many pints you drink or do you smoke,of course most people are going to lie and say the money is for home improvements as this theoretically increases the value of the collateral.Nah actually the girlfriend is pregnant,I need some cash to keep her quiet,my coke habit has gotten out of hand,the bookie is on to me about my vig.In many ways the paper is flawed due to reliance on anecdotal evidence,did they say sample any of the loans,do a drive by check if the loan was actually utilized on home improvements,nah.
http://www.centralbank.ie/publications/Documents/Equity-Release-August-Short-2012.pdf
@OMF & @Paddy19
If the divide is horizontal, between public & private sides, then I’d venture to say this could be a precedent in Ireland.
The usual problematic divide is vertical, between the top (+ their supporters) and everyone else underneath.
No.
It’s an Irish ego thing to think we are much different from anyone else.
The divide is vertical.
The top (+ their supporters) love pitching public against private sector while they rob both. The oldest trick in the book divide and conquer.
As I think Brendan Behan said about the clerics, they keep telling you about the next world so that you don’t see what the feckers are up to in this one.
@omf
the layout of the qwerty keyboard can throw up some lovely explanations… “Givernment”. Excellent, if not a typo, even better.