Vulture funds and non-banks now account for 16% of mortgage market — Central Bank

Vulture funds have been a lot quicker to pass on recent interest rate hikes by the ECB to their variable rate customers, meaning many of those mortgage-holders, including those in arrears, are now being charged upwards of 7% for their loans, more than twice the Irish average. Picture: Denis Minihane

Vulture funds and non-bank credit organisations now account for over 16% of the total Irish mortgage market, according to the Central Bank.

As of the end of 2022, some 115,000 mortgages were held by such funds in Ireland. That compares to fewer than 17,000 loans with such institutions at the end of 2009, when the sector accounted for just over 2% of the market.

The scale of the change throws into sharp relief the extent to which the mortgage market has skewed towards the vulture funds since the 2008 economic crash, particularly for mortgages that are in arrears.

All told, €19.4bn worth of Irish mortgages were held by non-banks and vulture funds at the end of last year, the Central Bank said.

Many of the customers of such funds saw their mortgages sold by one of Ireland’s pillar banks as part of tranches of ‘non-performing’ loans, which the main banks had been keen to get off their balance sheet during the 2010s under pressure from the European Central Bank.

However, vulture funds have been a lot quicker to pass on recent interest rate hikes by the ECB to their variable rate customers, meaning many of those mortgage-holders, including those in arrears, are now being charged upwards of 7% for their loans, more than twice the Irish average.

The growth in vulture funds’ share of the market is most notable in terms of Irish mortgages in arrears, the Central Bank said.

There were roughly 27,000 such loans in Ireland held by non-banks at the end of September 2022, equating to just under 60% of the figure for the entire country.

By contrast, the same figures stood at less than 10%, or just under 5,000 mortgages, in September 2009.

Of the 115,259 mortgages held by vulture funds at the end of last year, roughly 81,500, worth €12.5bn, were on either variable or tracker rates, leaving them most vulnerable to the marked interest rate hikes handed down by the ECB over the past 12 months with the goal of stalling inflation.

There are more than 700,000 residential mortgages in Ireland, with roughly 200,000 of them being tracker customers.

Last January, the Central Bank was accused at the Oireachtas finance committee of being indifferent to the holders of non-bank mortgages and the heightened rates they faced.

Addressing the committee at the time, Central Bank governor Gabriel Makhlouf said it was “unfair” to accuse the regulator of “washing its hands” of such customers, adding as much as it was possible for it to do so, the Central Bank was in engagement with the providers of those loans.

The officials present, however, acknowledged that they do not have the powers to interfere with the rates set by the banks, given such actions are essentially commercial decision.

Last month, the regulator told the Public Accounts Committee that Ireland’s banks have €60bn on deposit with the European Central Bank at a rate of 3%, yet the majority of deposit rates offered to Irish customers at present are close to 0%, something Mr Makhlouf said was likewise attributable to commercial decisions on the part of the banks and therefore not in the Central Bank’s "remit”.