Fewer than 20% top up mortgages

There is no evidence that homeowners are using the property market as "a gigantic ATM" by topping up their mortgages, a study by IIB Bank and the Economic and Social Research Institute (ESRI) has found.

Rising property values mean most homeowners are sitting on thousands of euro worth of equity - the difference between their outstanding mortgage and the value of their property - and lenders have encouraged homeowners to add to their original mortgage by advertising top-up or equity-release loans.

But the booming market has prompted less than a fifth of people to increase their borrowings, according to the In Too Deep? report by IIB Bank chief economist Austin Hughes and David Duffy, an economist at the ESRI. Published earlier this week, the report is based on a survey of 1,700 people.

Of those who have an outstanding mortgage and have borrowed more money, 15 per cent have done so in order to trade up in the property market. A further 43 per cent borrowed more in order to make repairs or build an extension to their existing property, while 24 per cent said they were using the money to purchase other goods.

Some 17 per cent said they were consolidating debts - in other words, rolling credit card and personal loan debts into their mortgage.

Noting that most of the additional borrowings had gone back into property, the report describes the debt consolidation activity as relatively modest.

Although homeowners can cut their total loan repayments by rolling high-interest loans into their lower interest mortgage, if they then repay all of their borrowings over the original mortgage term, they will end up paying a higher amount in interest than they would do if they repaid the personal loan and credit card debt back over a shorter term.

Only 7 per cent of those with outstanding mortgage debt said they intended to increase their level of mortgage borrowings over the next two years. "In fact, over the next two years the aim for nearly one in five consumers is to reduce the size of their mortgage debt," said Mr Duffy.

Some borrowers may be nearing the end of their mortgage term, he said, while others could be considering making lump sum or regular overpayments once their Special Savings Incentive Account (SSIA) matures.

Mary O'Dea, the Irish Financial Services Regulatory Authority's consumer director, has urged SSIA holders to consider using their matured funds to pay off debts.