Mortgage market is badly in need of a shake up... so enter the credit union

With a potential war chest of €400m, the small lenders are taking on greedy banks

Can credit unions finally challenge greedy banks in the mortgage market?

Six years after the last big building society bit the dust (when AIB bought EBS), community-based lenders can finally take on the banks again.

Credit unions (CUs) have lined up a potential €400million war chest to fund mortgage lending for the first time and provide badly needed competition.

Mortgages here are among the dearest in Europe – ranging from 3%-5% – at a time when European Central Bank rates are negative.

In other words, banks actually get paid to borrow money from the ECB – but then they pass it on to us at a whopping rate of interest.

The new CU mortgage system was developed by the Solution Centre, a cooperative hub funded by 38 unions.

And the new service is initially available to credit unions representing almost 1 million members.

‘Unlike banks, credit unions aren’t required to deliver profits for shareholders [and] are ideally placed to fill the gap in the market left by building societies,’ said Kevin Johnson, head of CUDA, which represents 10 major CUs and manages the Solution Centre.

Credit unions are massively ‘under lent’ with hundreds of millions of euros currently available to borrowers. Yet under current rules, credit unions can lend only 10% of their total loan book for periods over 10 years. The total loan book is €5billion. But only 2% – or €100million – is lent out long term.

That leaves another 8% – or €400million – as the potential credit union war chest for new mortgages. However, to avail of all this, every credit union would have to be offer mortgages, which seems unlikely, at least for a good while.

CUDA is campaigning to have what it called these ‘outdated, long-term lending limits’ reviewed and modernised so unions can really take on the banks.

Kevin said: ‘Credit unions shouldn’t be unreasonably prevented from delivering competition to drive down mortgage rates.

‘The current credit union limits were put in place many years ago and are arbitrarily capped. This measure is now out of date.’

The Irish League of Credit Unions, which represents most unions, also called for an easing of the mortgage rules for CUs.

A spokesman said it too is engaging ‘with the regulatory authorities to affect change in this area’ and is also developing its own ‘full service mortgage solution’ for members.

So who will get these new loans? How hard will it be to qualify for one? And will it really make a dif-