Credit unions up the ante in mortgage battle with banks
The new product has one of the lowest interest rates in the market, and comes weeks after credit unions were cleared to more than triple their current mortgage and business lending.Central Bank executives have given the go-ahead to changes to lending regulations for the sector.The new rules allow an increase in the total lending capacity of the sector for mortgage and business lending from €2.9bn to €9.9bn, the Central Bank said.A number of larger credit unions already offer mortgages, but each has a different interest rate.The new product, Credit Union Mortgage, will mean there will be a standardised national mortgage, with a set interest rate.The new single mortgage product has a variable interest rate of a competitive 3.85pc.And the rate will be capped at 4.4pc for the first three years.Credit unions said the new product provides borrowers with a certainty of repayment, while also delivering the benefits of a variable offering.It will be available to new home buyers and those looking to switch lenders, in around 30 credit unions nationwide this month, and in a further 40 next year.Minister for State for Financial Services and Credit Unions Robert Troy said the recent decision of the Central Bank to increase lending limits for credit unions is welcome as it supports more competition in the market.“Broader mortgage infrastructure and competition will be important in the years ahead, ensuring first-time buyers and those trading up or down have access to competitive financing.”The new mortgage product was developed by CU Mortgage Services, a centralised mortgage operation set up by the sector to provide centralised support services to its member credit unions.Head of CU Mortgage Services Seamus Beirne said: “Credit unions have a long track record in lending and their members are crying out for more choice in the mortgage market.”Borrowers will hope the new centralised credit union mortgage offering puts it up to the banks.Total mortgage lending across all banks and other mortgage lenders is around €13bn a year. Nine out of 10 mortgages in Ireland are issued by AIB and Bank of Ireland.Experts have said this indicates a chronic lack of competition in the market.Many people are not aware that credit unions offer mortgages.The new operation will offer credit unions a centralised underwriting facility and shared marketing of a single national mortgage brand.Around 100 credit unions already offer mortgages, but some smaller ones only do one or two a year. Each credit union offering its own individual mortgages has a different interest rate.The launch of a new standard rate available across credit unions should boost home-loan lending.Michael Dowling of Irish Mortgage Brokers said the new standard credit union mortgage rate was the cheapest variable rate in the market for mortgages where the loan value is 50pc to 90pc, in effect the majority of new mortgage customers.“This is a statement rate from these credit unions and shows the potential for credit unions to become significant players in the mortgage market over the next five years,” he said.
