State w ill not fund German ‘community loans’ system

HOUSE hunters seeking cheap mortgages are to be served a blow as it emerges the Government will refuse to fund a new community banking system based on a successful German model.

A new report, which is to be published today, will say the Government is open to German public savings bank Sparkasse entering the Irish market.

However, the State is not willing to provide an estimated €170m capital needed to establish a version of the banking system which writes 50pc of all German mortgages.

The report commissioned by Rural Affairs Minister Michael Ring will welcome more competition in the Irish banking system.

But it will say the Government is not willing to provide funding to a new lender.

The not-for-profit banking model is noted in Germany for competitive home mortgages and lowcost business loans for small and medium size enterprises (SMEs).

Representatives of Sparkasse have been actively seeking to enter the Irish market since last year. Sparkasse has insisted the bank could provide cheap loans which would allow desperate house hunters to get on the property ladder. The community banking model has been operating in Germany for more than 200 years. There are currently more than 390 individual localauthority-owned banks offering cheap home loans.

The banking systems escaped the financial crisis relatively unscathed. Sparkasse’s project manager in Ireland, Harald Felzen, previously said he believed there was Government resistance to the German banking system over concerns it would affect the sale of the State’s remaining shares in AIB and Bank of Ireland.