Low interest rates drive surge in credit union mortgages

The member-owned lenders have seen a strong interest from first-time buyers and switchers in their mortgage offering because they have some of the lowest rates in the market.

Some are offering home loans on rates as low as 2.95pc – far lower than banks.

Many credit unions only started to enter the mortgage market recently, meaning they have hit €500m in mortgage lending virtually from a standing start, according to figures from the Irish League of Credit Unions.

There are just over 200 credit unions in the State, with half of them now offering mortgages.

Legislative changes on the way will mean smaller credit unions that do not offer mortgages will be able to refer members on to a larger neighbouring credit union for one.

The new law would allow credit unions to collaborate to offer a national brand and a national mortgage rate, said chief executive of the Irish League of Credit Unions, David Malone.

The sector has big plans to take on the banks in the home-loans sector.

The lenders are looking at setting up a centralised mortgage company, with the aim of getting to a point of issuing one in 10 of all mortgages in this market.

Such a centralised services company would allow the sector to have common mortgage rates, a centralised underwriting facility and shared marketing.

This could lead to the sector issuing €1bn worth of mortgages over the next seven years, it is proposed.

Mortgages would become a core offering of the sector. However, there are regulatory limits on the lending credit unions can do.

At the moment, a credit union has to set aside 10pc of savings lodged from a regulatory capital requirement.

The movement is engaging with the Central Bank on lifting the limits, something which the regulator is set to review.

In the past year, League-member credit unions, which represent 92pc of active credit unions, have seen strong growth for personal loans, with 1,000 new members a week joining League-affiliated credit unions.

The total loan book of Irish League of Credit Union (ILCU) members now stands at €5.3bn. This is up from €4.7bn a year ago.

Mr Malone said the results showed new lending was now at its highest level since 2009. Average loan size of €6,107 was up 15pc on last year.

Loans are typically used to help with household improvements, to retrofit homes, buy a car, pay for a wedding or cover medical costs, he said.

More than 420,000 loans were issued in the year to end September. This equates to more than 8,100 new loans a week, to the value of €50m a week. In the year, the overall arrears ratio is down to 2.7pc.

The loan to savings ratio, a key measure of the health of the sector, climbed to over 35pc, the highest level since 2013. It compares with 32pc at end September last year.

Membership of ILCU affiliated credit unions also continues to increase. It currently stands at 3.2 million members.