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Ease mortgage lending rules, say credit unions

Credit unions have called on the Central Bank to loosen lending limits for the sector as they announced plans to significantly ramp up mortgage lending.

A group of almost 40 credit unions that are part of the Solution Centre, a business support hub for the sector, are entering the mortgage market with up to €400 million available for new loans. They say, however, that tight restrictions constrain their ability to offer long-term loans. Who knows if this will affect the need for wholesale mortgage lending because a large section of people needing this service might need long term loans only.

Credit unions are subject to lending restrictions dictating that that only 10 per cent of their loan book can be lent for ten years or more, although the ceiling can be raised to 15 per cent in some instances.

A lack of resources has prevented credit unions from reaching those lending limits to date, but underwriting and legal support will be made available to unions through the Solution Centre to fill those skills gaps. Members are looking for the Central Bank lending restrictions to be eased to allow them capture more of the mortgage market.

Kevin Johnson, chief executive of the Credit Union Development Association (CUDA), said those involved with the Solution Centre had spent the past ten months developing a framework to support mortgage lending. “Through the Solution Centre we have been able to help many credit unions make the move into the mortgage market,” he said.

“While each credit union will make the final underwriting decision on a case-by-case basis, this scheme is unique in that they will have ongoing access to specialist mortgage and legal expertise to support their own internal resources. In addition, increased long-term lending will improve the income levels and financial stability of participating credit unions, and may enable them to offer stronger dividend rates and even special offers for savers.”

Only 2 per cent of the €5 billion of outstanding loans given by credit unions are over a period of ten years or more, Mr Johnson said, meaning that the capacity for long-term growth is significant.

Michael McGrath, Fianna Fail’s finance spokesperson, welcomed the competition credit unions would bring to the mortgage market but said more must be done to facilitate long-term lending in the sector.

“A small number of credit unions are offering mortgages but they are severely constrained,” he said. “At a time when our banks continue to charge excessive mortgage interest rates, you would think the state would be bending over backwards to encourage new entrants to the mortgage market.”

A spokesman for the Central Bank said a review of lending limits was taking place but that it was too early to say when it would be finished or whether limits would be relaxed.

The credit unions involved in the initial roll out of mortgages will target lower-income families who qualify for affordable housing schemes, as well as first-time buyers and those trading up.

“Credit unions are happy to support these purchases, particularly as the loan-to-value ratios are typically low and the existing tenants invariably have a proven payment record,” Mr Johnson said.

Owen Callan, a banking analyst at Investec Ireland, said the credit union sector represented a “large untapped source of consumer credit” but added that it was unlikely to account for even 5 per cent of mortgage lending this year.

“I’d be surprised if they managed to hit €250 million in 2017,” he said. “But in tandem with other alternative lenders seeking to enter niche elements of the market this year, we could see up to 5 per cent to 10 per cent of new mortgage lending come from non-mainstream lenders in the second half of 2017 or the full year in 2018.”

He added that such lending volumes from non-traditional sources would put earnings growth estimates at AIB, Bank of Ireland and Permanent TSB under “slight pressure”.