`Huge sense of prosperity' as consumers top up their mortgages

With retail sales rising 21.6 per cent in April, there are no indications that worries about inflation are causing consumers to think twice about spending money. And, despite indications that house prices in Dublin decreased slightly in the first three months of the year, there is no sign that the property boom is abating.

Anecdotal and statistical evidence also suggest that many home-owners are choosing to top up their mortgages by drawing down an additional sum to their existing loan. This facility is available from most banks and building societies.

According to Brian Halpin, an analyst with Irish Life & Permanent, both the number and volume of advances has risen steadily since 1998. The value of "further advances" granted by the bank rose 50 per cent in the 17 months to the end of May and the number of advances by 44 per cent. A Bank of Ireland spokesman says that more of its borrowers are seeking additional loans. The average mortgage at the bank was £75,000, and consumers were seeking, on average, to release equity worth £25,000£30,000.

For borrowers, the clear advantage is that such repayments are made at mortgage rates, which are generally much lower than those for personal loans.

The head of lending at the EBS, Martin Walsh, attributes various factors to the trend, which has seen some customers borrow as much as £50,000 on top of their mortgages. Among them, he says, is the "huge sense of prosperity" felt as the boom continues.

Home-owners are increasing their loans to build extensions, and garage and bathroom conversions, he adds. These people might consider purchasing new property, but ever-increasing house prices and the other costs associated with relocating, such as stamp duty, means that upgrading an existing property may prove a more attractive option. Parents of young children may also be reluctant to move their children from one school to another.

And Bank of Ireland is also lending sums to people who want to help their children gain a foothold in the property market. As with all loans, its spokesman says the ability to make repayments is the crucial determinant when the bank decides whether to grant a loan.

At the EBS, Mr Walsh says borrowers are offered many options. According to the amount borrowed and the remaining repayments on the original sum, they can choose to increase their monthly repayments or extend the repayment period by a set number of years.

A further option is to draw down a separate loan to the mortgage sum, although the interest charge is 0.85 per cent more than the house rate.

"Normally very few costs are involved in setting it up," says Mr Walsh. Where very large sums are involved, he adds that borrowers could consider approaching another lender, as there may be possibilities to secure more favourable repayment rates.

The critical factor, says Bank of Ireland's spokesman, is the rising value of property in general. Where people do not want to move home, they can use the equity they already own to secure further capital from lenders.