Vulture funds charging interest rates of at least 8.5% to 7,000 homeowners

The paper noted a significant shift in interest rate payments across all institutions in recent years.

Around 7,000 homeowners in Ireland are paying an interest rate of at least 8.5% on their mortgage to vulture funds, a new Oireachtas paper has said.

To help support these households, the Government could examine proposals from Britain that have included interest-free equity loans on the model of the help-to-buy scheme, it added.

The Library and Research Service has published a string of papers on "key issues" for the 34th Dáil and 27th Seanad, with its latest paper focusing on the impact of mortgage interest rate rises on non-bank customers.

It said that what it refers to as “non-bank non-lenders", or vulture funds, don’t have to compete for customers the way normal banks so it makes them “more likely” to increase their rates above that of the European Central Bank.

Significant shift

The paper noted a significant shift in interest rate payments across all institutions in recent years.

“By the end of this period, fewer people were paying low interest rates and more were paying higher interest rates,” it said.

“Specifically, in June 2022 nearly half of the market were paying an interest rate of between 0% and 2.5%, by June 2024 this had dropped to just over one-fifth. Similarly, in June 2022 less than 1% of the market were paying between 6% and 8.5% and by June 2023 10% of the market were paying this higher rate.” 

Vulture funds account for large shares of households paying higher interest rates. Last June, around eight in 10 households who were “customers” of such institutions were paying a rate between 6% and 8.5%, it also noted. 

Vulture funds account for large shares of households paying higher interest rates.

Everyone paying in excess of 8.5% was a customer of a vulture fund.

“Unfortunately, they tend to be unable to switch their mortgage to an alternative provider.

“This is largely because traditional banks are unable, for regulatory and commercial reasons, to accept customers who have previously had their mortgage be deemed to be a non-performing loan.” 

The report said that 1% of mortgage holders were paying an interest rate of between 8.5% and 10% and, with the most recent Central Bank data showing there are 700,000 private dwelling house mortgages in Ireland, it means that roughly 7,000 of those customers are paying at least 8.5% interest on their mortgage.

Similar issues exist in Britain, it noted, with proposals put forward in recent years by the London School of Economics to help mortgage holders “trapped” paying higher interest rates.

Financial advice

These include free financial advice for these customers, interest-free equity loans to clear the unsecured element of the loans and a “fallback option” in the form of a government guarantee to lenders to offer affected customers new mortgages.

Another suggestion was government equity loans on the model of help-to-buy, interest-free for the first five years.

The paper added: “While these UK proposals have not yet been actioned, they offer potential alternatives for customers stuck with uncompetitive interest rates on their mortgages in Ireland." 

Non-bank non-lender customers remain disproportionally affected by higher interest rates, it added.