Credit unions face big task to secure mortgage market share

The green light came as the Central Bank unveiled new lending rules that free up credit unions from January to effectively offer loans to home borrowers and businesses for the first time.

Credit unions face big task to secure mortgage market share

Credit unions have secured approval to boost long-term lending allowing them to offer mortgages but they face an uphill task to grab any significant market share from the banks, a leading expert has said.

The green light came as the Central Bank unveiled new lending rules that free up credit unions from January to effectively offer loans to home borrowers and businesses for the first time.

The Central Bank has set the rules to favour the largest credit unions — which have the means to take on the costs entailed in lending to home loan borrowers.

The new rules set ceilings of 7.5% of total assets for a single credit union to advance home and business loans, rising to 10% and 15% for credit unions that hold assets of at least €50m and €100m.

The official lifting of the restrictions come after long years of credit unions having argued they are best placed to bring some form of competition to the mortgage market, if only they were allowed.

Credit unions cite surveys that they are among the most trusted brands in the country, while the main banks score poorly by the same measure.

Regulators have long been wary as the lack of controls at some credit unions was exposed during the crash.

However, Michael Dowling, a leading mortgage broker, said the big credit unions will have the scale to offer mortgages and current accounts but that most credit unions do not have the resources.

He said there was much goodwill but that it would take many years for credit unions to become significant rivals to the mortgage banks.

The Credit Union Development Association, which has many of the largest credit unions as members, said that, following the new Central Bank rules, credit unions are “poised to double or triple loan book size”. It was, however, disappointed by the scope of some of the changes.

“CUDA has persistently lobbied for these changes since 2015 and we are delighted with these changes, which will bring much-needed competition to the market for mortgages, home renovations, and business loans,” said chief executive Kevin Johnson.

Ed Farrell, the chief executive of the Irish League of Credit Unions, said credit unions will play a more significant role in the mortgage market but he also expressed disappointment with some of the restrictions.

The ILCU, on behalf of its affiliated credit unions, has long campaigned for a review of the long-term lending limits imposed on the credit union movement.

"These limits restricted our ability to meet the borrowing requirements of credit union members,” he added.

“Albeit that the amendments set out in today’s statement remain conservative in their scope, the ILCU nonetheless welcomes the Central Bank’s decision to remove the existing limits, and to recognise the evolving lending model of the credit union movement.”

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