Credit unions taking a growing share of the mortgage-switching market

Thousands of homeowners rushed to avail of lower fixed terms to try and avoid the impact of the ECB rate hikes.

Data shows 10% of homeowners switching their mortgage moved to a credit union last year.

Credit Unions are taking a larger share of the mortgage market with 10% of those switching their mortgage moving to credit union lenders last year.

A report by the Central Bank of Ireland shows that in just a few recent months the sector has moved from being close to absent within the market to now holding a small but growing share.

In late 2022, the number of homeowners switching their mortgages increased sharply to levels last seen in 2004. The increase was linked to the move by the European Central Bank to end a decade of near-zero rates.

Thousands of homeowners rushed to avail of lower fixed terms to try and avoid the impact of the rate hikes. This rush to switch lenders was reversed last year as the higher rates were transmitted into the Irish market.

At 4,000 mortgage switches per quarter, the level was elevated but not as high as the historical peak of between 6,000 and 8,000 loans per quarter between 2006 and 2008, a period of intense mortgage market competition. The figures do not include homeowners who stayed with their lender but moved to a different rate.

According to the Financial Stability Note written by Edward Gaffney and Fergal McCann, the main retail banks were the predominant destination for over 90 per cent of all mortgage switchers between 2017 and 2019.

The share of mortgage switchers who moved to non-bank lenders then increased from 20 per cent at end-2020 to 60 per cent in mid-2022, due to the loose financing conditions of the covid pandemic.

"Our findings are in line with international research which shows that non-banks lend more during periods of loose financial conditions and tighten credit more rapidly in periods of tight financial conditions, because they typically rely on volatile and cyclical forms of market funding due to a lack of insured deposits," the paper states.

The note also states that from a position of having been close to absent from the mortgage switching market up to late 2022, around 10 per cent of mortgage switches were to credit unions by the end of 2023.

Kevin Johnson, CEO of the Credit Union Development Association (CUDA) said the note confirms that credit unions have begun to account for a small but growing share of mortgage switches. "These figures are proof that credit unions have become and will continue to be a strong contender in the Irish mortgage market.

"There has been a phenomenal growth in credit union lending, and this has been driven by an increased appetite for credit union mortgages as well as the increased ability of credit unions to provide mortgages. The demand from members is clear, they want an alternative to the banks and credit unions are stepping up," Mr Johnson said.

Trevor Grant, chairperson of Irish Mortgage Advisors said that after a year of stalemate in the switching market without much incentive for people to switch, they believe the tide is turning. 

"The expiry of tens of thousands of fixed-rate mortgages in the coming months will see more wanting to switch their mortgage in order to obtain the best terms available," he said.

"We are already seeing people coming off fixed-rate mortgages and this will continue for the remainder of the year. Faced with a big jump in their monthly mortgage rates as their pre-2022 ultra-low fixed-rate mortgage deal expires, many will be looking to move to an alternative lender – or to secure the best possible deal with their existing lender."