Credit union shames banks with a 2.9% f ixed-rate mortgage offer

LOANS from credit unions could see home owners safely through a looming rise in interest rates, according to experts.

And one credit union has already shamed the banks by offering a new 2.9% mortgage deal, fixed for up to 10 years.

The mortgage switcher deal, from Dublin’s Cana credit union, beats the cheapest variable rates available. In comparison, a 10-year fixed-rate mortgage on offer from Bank of Ireland is priced at 3.95%.

Cana, with 7,000 members, is the credit union for the staff of the Revenue Commissioners and their families.

Repaying a €200,000 Cana loan over 10 years would save borrowers more than €11,000 compared to BoI’s fixed-rate loan and to most standard

Credit unions have money to lend

variable rates now available.

And mortgage experts have predicted that other large and well-funded credit unions could soon follow the lead of Cana.

‘A fixed rate of 2.9% in an environment where interest rates are likely to go up is fantastic. I’ve no doubt there will be more credit unions offering this type of product,’ said Michael Dowling, spokesman for the Independent Mortgage Advisers’ Federation, who is also a member of the board of his local credit union.

Banks have ignored criticism for charging 4.5% on home loans when official rates fell below zero and European banks have charged half as much. They have also come under fire for failing to offer longterm fixed mortgages to protect borrowers from hikes, as is the norm in Europe.

Borrowers have been warned to brace themselves for hikes of 0.5% or even 1% next year, and banks are failing to shield them from the new higher rates by offering reasonably priced fixed-rate offerings.

Meanwhile, Cana has not only put banks to shame by coming up with the ‘holy grail’ of mortgages – a low-cost fixed-rate option – but it also paid 2% in dividends in 2015, over three times the best rate on offer from banks for on-demand accounts, KBC’s 0.6%.

However, according to a Central Bank report on the sector published on Friday, lending more money, rather than attracting deposits, is the greatest challenge facing the credit union movement.

Total credit union lending has contracted from €5.7bn in 2011 to just €4.1bn in 2016.

The Bank said, savings grew, up from €12.5bn at end-September 2015 to €13.3bn at end-September 2016. This is an ‘indication of member loyalty and trust’ but ‘brings further business challenges in terms of the ability to provide a return on funds,’ the report said.

‘While the figures for last year show growth in lending, the challenge remains that, without other changes including development of products and services, credit unions are unlikely to develop sufficiently to ensure a sustainable business model into the future,’ the report added.

Mr Dowling said that credit unions, with their low cost base, are capable of mortgage lending at rates lower than those charged by banks.