Monday 5 December 2016

New lender aiming to undercut banks on mortgage rates

Published 23/04/2016 | 02:30

Frank Money is aiming to have mortgage rates of 2.8pc – some 0.5pc lower than the best variable rates offered by the banks. Photo: PA
Frank Money is aiming to have mortgage rates of 2.8pc – some 0.5pc lower than the best variable rates offered by the banks. Photo: PA

A new lender is aiming to undercut the banks by offering much cheaper mortgages.

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Frank Money is aiming to have mortgage rates of 2.8pc - some 0.5pc lower than the best variable rates offered by the banks.

The new lender is awaiting approval from the Central Bank to enter the mortgage market, and will be targeting switchers and new borrowers once it gets authorisation.

Its entry could mean someone on a variable rate of 4.3pc, with a €300,000 mortgage, could save €3,000 a year by opting for Frank Money's lower rate.

One broker, who has been briefed on the new lender's plans, said: "Frank Money is planning to offer rates of between 2.7pc and 2.8pc. That is half a percent cheaper than the very best rates in the market."

The broker, who did not want to be named, said the entry of the new lender may prompt variable rate cuts from banks. But much would depend on homeowners getting over the inertia that stops them switching mortgages, he added.

The new lender is likely to target potential switchers with equity in their home, or new borrowers with large deposits.

There is some frustration among brokers that it is taking the Central Bank months to approve Frank Money's application to become an authorised mortgage lender.

Competition

This is despite Central Bank Governor Philip Lane blaming a lack of competition in the home-loans market for the fact that variable rates in this country are the highest in the eurozone.

The plans for Frank Money to compete in the mortgage market come months after Australian group Pepper entered the market here.

Frank Money will issue mortgages through brokers. It is understood the operation is funded from pension funds in Ireland and Europe. It plans to use financial services firm Capita to manage and administer the mortgages it issues.

Frank Money is seeking approval from the Central Bank to operate as a retail credit firm, which would allow it to issue loans but not take deposits. This is the same form of authorisation used by Pepper.

Asked if Frank Money had approval to operate as a lender, a spokeswoman for the Central Bank said: "We can't comment on any pending applications for authorisation."

Frank Money's boss Colin Cunningham did not respond to calls.

The current high variable rates have made it profitable for new lenders to enter the market. First-time buyers who get mortgage approval can expect to be charged between 3.2pc and close to 4.5pc. This is despite the record low ECB base rate of zero.

Pepper recently unveiled plans to begin lending here, seeking to capture a slice of a market that is dominated by AIB and Bank of Ireland.

Irish Independent

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