Firm has raised mortgage rates by up to two percentage points and paused its 20-year fixed offering
Lender Finance Ireland is cutting jobs in its residential mortgages section as it and other so-called ‘non-banks’ are being squeezed by the rising cost of funds they borrow on the financial markets to lend to consumers.
The finance house, led by former Permanent TSB chief executive Billy Kane, is the country's biggest non-bank lender including car finance and loans to the commercial real estate, farming and small business sectors.
It entered the mortgage market in 2019 and has built-up a substantial loan book with new lending of €552m in 2021, double the previous year’s total. The business employs 170 people in all, with a minority working in the mortgage business.
A spokesman said Finance Ireland will continue its residential mortgage lending but confirmed job losses.
“Finance Ireland is engaging with colleagues on a limited voluntary redundancy programme as part of right-sizing our resources in our residential mortgage team. This VR programme is not open to staff in other parts of Finance Ireland.”
It comes after the firm’s announcement last month it was raising mortgage rates by up to two percentage points and suspending altogether its pioneering 20-year fixed-term mortgages, just a year and a half after that product was launched.
The company says it intends to reintroduce a long-term fixed rate once the interest-rate environment has resettled, but the product changes and job cuts highlight the pace of change sweeping the sector.
Another non-bank lender, ICS, has also announced multiple rate rises and heavily restricted its new lending.
Banks that had been under competitive pressure from the non-banks in recent years have been better able to absorb rate hikes since the European Central Bank began lifting its rates in July thanks to their plentiful and low-cost customer deposits and have announced much smaller rate hikes. Banks have raised borrowing costs, but by less than non-banks.
On Friday, Permanent TSB raised interest rates on its fixed-rate mortgages by an average of 0.45pc.
Bank of Ireland has increased the interest on its fixed-rate mortgages by 0.25 percentage points for new customers. And AIB increased its fixed rates recently by 0.5 percentage points.
Non-banks, however, are more directly exposed to the rapidly rising bond market funding costs, making long-term price promises more risky and less economical and eroding a competitive advantage.
That leaves them in a tough fight to win the huge share of new and switcher business being thrown off by the planned exits of Ulster Bank and KBC Bank Ireland from the domestic market.
The withdrawal of the two banks means as much as 25pc of the mortgage market is up for grabs, a once-in-decades opportunity to grab market share that the remaining banks look increasingly well positioned to benefit from.