Credit unions step up mortgage presence with €400m to lend

Credit unions are stepping up their efforts to capture some of the mortgage demand arising from the government’s help-to-buy scheme by developing a new mortgage framework. However, despite the move, credit unions will still likely take a less than 5 per cent share of the mortgage market.

In a “milestone” for the credit union sector, the Solution Centre, an innovation hub owned by credit unions, has built an end-to-end mortgage support framework, including assessment and standardised administration processes, that will facilitate 32 credit unions in their mortgage lending

Kevin Johnson, chief executive of the Credit Union Development Association, which manages the Solution Centre, says the initiative will help many credit unions make the move into the mortgage market by offering ongoing access to specialist mortgage and legal expertise.

“Unlike banks, credit unions aren’t required to deliver profits for shareholders,” he said. “So anything we offer is priced to meet the needs and demands of members, and credit unions are ideally placed to fill the gap in the market left by building societies.”

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Credit unions are expected to target first-time buyers, trader uppers and those looking to acquire properties in tenant purchase and affordable housing schemes.

“The recent changes to the Central Bank’s mortgage rules and the Government’s help-to-buy scheme will boost the number of first-time buyers looking to buy, and should encourage the developers to build more new homes,” Mr Johnson said. “Credit unions are ready to play their part in helping people to own their own homes.

Restrictive regulations

Credit unions already offer mortgages, though regulations dictate that they can only lend 10 per cent of their loan for terms greater than 10 years, which leaves many unable to lend under these terms. As a result, just 2 per cent of the €5 billion that credit unions have available for lending has been lent out on terms over 10 years.

Now, however, with this new infrastructure, more credit unions should be able to lend, which could free up a pot of some €400 million, or the remaining 8 per cent that has not yet been lent.

Credit unions would also like to see the regulations loosened, which would allow them to lend even more, Mr Johnson said. “It is now essential that these restrictive limits are increased in order to allow more people get their home loan from their credit union.”

Despite the moves, Investec economist Philip O'Sullivan says he would expect credit unions to take a less than 5 per cent share of the mortgage market. He would be "surprised" if credit unions managed to hit the €250 million in lending mark in 2017.

Still, Mr O’Sullivan notes that in tandem with other alternative lenders, such as Frank Money, seeking to enter the market, up to 5-10 per cent of new mortgage lending could potentially come from non-mainstream lenders in the second half of this year.

With mortgage rates still significantly higher in Ireland than across the rest of the euro zone, such a development would be good news for consumers, as a more competitive market place would put pressure on lenders to cut rates.