On the face of it, comments released by the Central Bank on Tuesday – from the minutes of a recent meeting of its commission, or board – on the improving competitive landscape in the Irish lending market were unfortunately timed.
Within hours, it was reported that Finance Ireland, the first new entrant post-crash to the owner-occupier loans market in 2018, has decided to stop issuing mortgages. It’s little surprise.
In reality, Finance Ireland hasn’t been a competitive force in the mortgage market for almost three years, when it hiked rates as its own borrowing costs in the wholesale and bond markets – where nonbank lenders raise funds – soared when official European Central Bank interest rates moved higher.
The company’s chief executive, Billy Kane, repeatedly bemoaned in recent years how mainstream banks have been “actually cross-subsidising” their mortgage books with cheap deposit funding. Close to 90 per cent of customers’ money in Irish banks is in on-demand or current accounts, which are earning little or nothing, even as those banks offer rates of up to 3 per cent on certain savings products.
Finance Ireland “has more or less been absent from the mortgage market since the rate-hiking cycle began so this will not have a large impact on the market shares for the remaining players”, said Denis McGoldrick, an analyst with Goodbody Stockbrokers.
The lender’s most recent best rate had been 5.35 per cent for seven years fixed, for people borrowing less than 50 per cent of the value of the property. That is some 2.35 percentage points higher than the lowest rate currently available in the market.
Still, there has been a re-emergence of competition from nonbank lenders in the mortgage market in recent times, with ICS Mortgages, which restricted lending a few years back, moving within the past year to lower rates and ease lending restrictions as the ECB cut rates again.
Another start-up, Núa Mortgages, was launched last summer. Elsewhere, MoCo, which is actually owned by a bank, Austria’s Bawag, has been making inroads into the market in recent times.
But the three main banks in the State - AIB, Bank of Ireland and PTSB - controlled about 92 per cent of the market last year. As the nonbanks can’t lead the way on loan pricing, they’re resorting to competing mainly on more niche products and services. They would hope to make greater inroads this year.
For Finance Ireland, it will continue to focus on more established business lines: lending in the car market, the commercial property sector and to small businesses.
