Friday 20 October 2017

Charlie Weston: Credit unions could put it up to the banks on home loans

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Charlie Weston

Charlie Weston

The move by credit unions to step up mortgage lending this year will give the home-loans market a much-needed boost. And boy does the market need some proper competition, with a small number of banks charging sky-high variable and fixed rates, and little product innovation.

Credit unions are gearing up to issue up to €400m worth of mortgages this year. They are set to target first-time buyers, trader-uppers and those looking to acquire properties in tenant-purchase and affordable-housing schemes. They will also offer home loans to people who want to switch their mortgage to their member-owned lender.

Some 32 credit unions - representing one million members - are part of an initiative being promoted by the Solutions Centre, a voluntary grouping of credit unions aimed at developing new financial products for consumers.

The Solutions Centre is providing mortgage underwriting advice, essentially assessing the member's suitability to borrow, and legal advice to credit unions that have signed up to it.

The 32 credit unions are doing this while operating under severe restrictions when it comes to the amount of money they can loan out for mortgages.

Current rules mean they can only issue 10pc of their individual loan books in long-term lending, such as mortgages.

This is despite having some €5bn in total to loan out.

However, the Central Bank is reviewing these rules. The move by regulators to look at the mortgage restrictions could see many of the larger credit unions becoming significant players in the home-loans market, putting it up to our stale banks.

Proposals for changes to the restrictions on long-term lending for credit unions have already been put to credit union representative bodies, the regulator said. Lending restrictions on credit unions are a matter for the Central Bank.

Banking analyst at specialist bank Investec Owen Callan told investors last week that the expansion of mortgage lending by credit unions would put some pressure on the likes of AIB, Bank of Ireland and Permanent TSB.

In Canada, 58pc of credit union loan books are made up of mortgages.

If something similar was allowed to develop here it would give the banks a run for their money.

All of this comes ahead of the expected enactment by the summer of the long-promised legislation to give the Central Bank powers to cap excessive mortgage interest rates.

Maybe, just maybe, the banks won't have it all their own way in the coming months.

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