Irish home owners are increasingly re-mortgaging their properties, with many taking advantage of the steady rise in house prices to distribute wealth to their families or to fund property investments.
IIB Homeloans said it advanced about €1 billion to individuals remortgaging their homes in Ireland last year, about half of its total new lending.
The bank suggests that Irish borrowers are now following well-established trends in the US and UK, where re-mortgaging represents a substantial part of new home lending.
"People are using the money to provide gifts for their children, or to fund the purchase of property in the UK, possibly as a pension," chief executive, Mr Brian McManus, said.
The bank, which has more than 38,000 customers, expects to capitalise on this phenomenon and is predicting a further 7 per cent rise on average in house prices here this year.
IIB Bank's economist, Mr Austin Hughes, said the Irish property markets remained well-supported, with strong demand for mortgage finance from Ireland's young population set to continue. Changing work patterns and family structures will also keep borrowing trends intact.
Housing wealth will also become increasingly important for Ireland's economic growth prospects. Mr Hughes suggested that the sharp increase in house property values last year means that the net worth of Irish households grew four times faster at €40 billion, compared to mortgage borrowing, which rose by €4 billion.
"The net worth was 10 times as large as the increase in household spending. Over time we would expect the massive change in household wealth in recent years to be reflected in more remortgaging activity," Mr Hughes said.
He added that the pace of growth of borrowing in Ireland isn't as alarming as some would suggest. "The population structure in Ireland and the history of high interest rates makes us particularly responsive to the low rates we currently enjoy," according to Mr Hughes.
Over time, the bank expects to see the massive change in household wealth to be reflected in more remortgaging activity. In the UK and the US in the past year, mortgage equity withdrawal accounted for an average of 4 per cent of household disposable income. In contrast,the trend in Ireland was the opposite, with households putting substantially more of their own money into the property market.
"Over time, the Irish trend may shift close to that of the UK and US and this is likely to entail a very substantial amount of remortgaging activity," Mr Hughes said.
He also suggested that improved global economic conditions would bolster economic growth in the Irish economy and said it was unlikely that interest rates would rise before late 2004.
