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Major fears for mortgage competition after lender caps loans at two-and-a-half times salary


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A mortgage lender is to cap the size of new home loans at just two-and-a-half times income for the first time.

It is a move that will raise major fears over the collapse in competition as Ulster Bank and KBC quit Ireland.

The move by ICS Mortgages to heavily restrict its lending is set to hand huge market power to AIB, Bank of Ireland and Permanent TSB.

They are already gaining from the planned exits of Ulster Bank and KBC, and have boosted their mortgage businesses by buying mortgage books from the two departing banks.

The scaling back of lending by ICS raises huge fears about competition in the mortgage market at a time when the European Central Bank has embarked on a tough rate-rising plan.

Mortgage experts said that up to now the mortgage-rate cutting by non-bank lenders such as Dilosk-owned ICS Mortgages and Finance Ireland, along with Spanish-bank owned Avant Money, have been keeping rates competitive.

Although a niche player compared with major banks such as AIB or Bank of Ireland, Dilosk has over €1.4bn of mortgage lending on its books and thousands of customers.

Figures earlier this week showed that Ireland was the only country in the eurozone where mortgage rates fell in June.

And the gap between home-loan lending rates here and the rest of Europe has closed over the past few months. Now there are fears the banks will find it easier to raise rates.

ICS Mortgages told brokers it is restricting residential mortgage lending because it has “exceeded our 2021 issuance levels and together with a strong pipeline in place for the remainder of the year we expect to comfortably exceed our business forecast for 2022”.

Non-bank lenders get their funds from the markets, leaving them exposed to rising market rates. Banks here are funded by customer deposits, and have excess levels of these at the moment.

A recent Central Bank report found the funding model for non-bank lenders left them more vulnerable than the banks to the cost of finance.

ICS, which has twice increased its rates this year, has now told brokers that couples will need a joint income of at least €100,000 to qualify for a mortgage.

It will only lend two-and-a-half times the income of applicants, compared with the three-and-a-half times limit imposed by regulators.

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Bonuses and other variable pay will not be counted in calculating applicants’ incomes.

First-time buyers will only be approved for 80pc of the property’s value. That figure drops to 70pc for second-hand buyers. There will be no equity release in switcher applications, and applications from the self-employed will be assessed based on directors’ salary or drawings only.

Broker Michael Dowling said the restrictions meant very few applicants would fulfil the criteria for loan approval.

“If every other lender did this, it would bring the market to a standstill,” he said.

He said ICS Mortgages was effectively saying it was closed for mortgage business at the moment. “This will be welcomed by the banks as they will now have free rein. It is not good for the market,” Mr Dowling said.

The non-bank lender was created when Bank of Ireland was forced to sell its ICS brand in 2014.

ICS/Dilosk chief commercial officer Ray McMahon told brokers: “We are working on enhancing our service levels, further diversifying our funding and developing a number of exciting new products with innovative features. We are looking forward to continuing to develop these initiatives as securitisation and hedging markets normalise.

“As soon as markets normalise, it is our intention to reverse all of these temporary changes. Our buy-to-let criteria remains unchanged.”

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