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Monday 9 December 2019

Stronger credit unions can triple mortgage and business lending after Central Bank rule changes

Flexibility: Credit union registrar Patrick Casey introduced change
Flexibility: Credit union registrar Patrick Casey introduced change
Charlie Weston

Charlie Weston

Some credit unions will be allowed to triple the amount of mortgage lending they can do in a move expected to shake up the home-loan market.

The Central Bank has scrapped existing rules which restrict the number of mortgage and business loans the local lenders can issue.

Regulators have now opted for rules which will allow larger credit unions to offer more lending for house-buying and for small businesses.

It comes after the lenders have developed a new mortgage product with the aim of meeting regulatory requirements.

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The radical alteration to the rules will mean larger credit unions will be able to issue more longer-term loans.

But the less sophisticated lenders in the sector will still have strict limits on mortgage and business lending. This is because the Central Bank has opted for tied lending limits with the lenders with more assets, allowing them to lend more for mortgages and firms.

The new rules come into effect in January.

Credit unions have been struggling to grow their loan books but are asset rich.

From next year, smaller credit unions will be allowed to lend out business and mortgage loans which represent up to 7.5pc of total assets of the credit union.

Those with assets up to €50m will be allowed to issue big loans which represent up to 10pc of their assets, subject to application and approval.

But larger credit unions, those with assets of at least €100m, will be able to apply for approval to issue mortgage and business loans representing 15pc of their assets.

Assets of a credit union include its investments, loan book and its buildings.

Currently, most credit unions are restricted to lending no more than 10pc of their loan book over 10 years. Some larger credit unions have permission to issue 15pc of their gross loan book with 10-year terms.

But these current rules take no account of the fact that credit unions are asset rich.

One of the State's largest credit unions, Savvi, was fined earlier this month for breaching the lending limits.

Patrick Casey, registrar for credit unions at the Central Bank, said: "We are introducing these changes so that credit unions will have greater flexibility to engage in longer-term lending, including home mortgage and business lending, to support increased diversification in credit union lending."

Representative body the Irish League of Credit Unions welcomed the relaxing of the rules that will see some credit unions able to triple their mortgage lending.

"There has been significant appetite from our affiliated credit unions, and indeed credit union members, for larger and longer-term loans," it said.

"This move will enable credit unions to expand their longer-term lending offering on a prudent and managed basis."

Rival body the Credit Unions Development Association (Cuda) welcomed the alignment of loan volume with asset size and said the regulations would bring "much-needed competition" to the financial services market.

"The regulations will allow many credit unions to do more loans for more people," said Cuda chief executive Kevin Johnson.

Irish Independent

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