Credit unions are set to become a major player in the mortgage market to rival banks who have been widely criticised for hitting customers with interest rate hikes while refusing to pass on the benefits to savers.
Under new legislation introduced next month, the community lenders will be given significantly greater capacity to lend to homeowners and businesses.
As part of the new reforms being piloted through the Dáil by junior finance minister Jennifer Carroll MacNeill, credit unions will be able to provide up to €5bn in a major shake-up of the mortgage market.
The reforms will also free up credit unions to provide a range of banking services in rural parts of the country the banks have abandoned.
Deputy Carroll MacNeill FG told the Irish Mail on Sunday: ‘One of the features of Irish towns as I travel around is that the banks have moved out and the credit unions are still there.
‘The connection credit unions have with their customers is completely different. People who have moved from working in banks to working in credit unions speak about a completely different attitude.’
In a thinly-veiled criticism of the pillar banks who benefited from a €64bn taxpayer bailout following the property crash, she added: ‘Banks appear to be looking for ways to avoid helping people. In credit unions it is the opposite.’
The minister added that credit unions could offer more competitive rates for members who have seen the cost of servicing their home loans soar in recent months.
She told the MoS: ‘When it comes to interest rates for mortgages, credit unions are very competitive. They don’t have to borrow in the wholesale market, which means their rates are similar or sometimes lower than the banks.’
Ms Mac Neill’s Credit Union (Amendment) Bill will be introduced in the Dáil next month and has the firm backing of her government colleagues.
Under the bill, credit unions will be allowed to loan out double the amount it currently can for mortgages and commercial lending.
Credit unions across the country currently have more than a combined €20bn in savings.
Because of strict regulations, the community lenders are currently only allowed to lend out 7.5% of their assets.
But the new reforms will allow different branches to band together and pool their resources in new corporate groups of credit unions, who will be able to lend out 15% of their total assets.
Under the new structure, members of small credit unions seeking a mortgage or small business loan will be referred to bigger branches who will have the financial firepower to release the funds.
The Government hopes the move will provide real competition in the mortgage market, which is dominated by a handful of banks and financial institutions who have been accused of putting profits before the needs of their customers.
One financial source familiar with the legislative changes said: ‘We want credit unions to have the freedom to offer precisely the same services as banks, be it credit cards, mortgages, commercial loans, even ATM’s.
‘This legislation offers them the freedom to do this either by referring members or pooling their resources. If they combine together, they will be able to offer more and bigger loans, but if a credit union wants to stay small, it stays small.’
Mortgage customers have been hit with nine consecutive interest rate hikes from the European Central Bank (ECB), leaving many up to €5,000 worse off a year.
The country’s pillar banks have come under extensive criticism in recent months for failing to pass on the interest rate hikes onto customers while mortgage rates continue to rise.
Earlier this month, the international ratings agency Standard & Poor found Ireland to have the lowest deposit rate gains out of the Eurozone, UK and US, with just 7% of interest rate hikes being passed on to savers. Higher Education Minister Simon Harris recently slammed Irish banks for failing to pass on interest rate increases to savings deposit accounts – describing them as the ‘laggards of Europe’ – while mortgage holders are hit with rate hikes.
Finance Minister Michael McGrath also warned he wants to see improvements in the next few weeks, adding that it was time for ECB rate hikes to be passed onto savers.
Bank of Ireland became the first to belatedly respond to increased Government pressure this week as it announced new deposit rates for customers, offering a rate of 3% on certain products.
A senior Government source said it is hoped the introduction of a major new player in the mortgage market in the form of credit unions will ‘put some manners on the banks’, adding: ‘There are some tall poppies there that need to be trimmed.’
Ms Carroll MacNeill said newly enhanced community lenders can play a vital role in revitalising banking services in rural parts of the country.
The Dun Laoghaire TD told the MoS: ‘Credit unions can play a key role in building an alternative retailing bank sector.
‘This is particularly the case in rural Ireland where banks are leaving and credit unions are expanding.
‘They can act as a great counterweight to the retail banks. They are the most trusted brand.’
The introduction of corporate credit unions will significantly increase the loan capacity of individual branches.
The total credit union mortgage book is currently just €364m while the average credit union mortgage is approximately €100,000.
Ms Carroll MacNeill said: ‘Credit unions have €20bn in assets but only €5.5bn is lent out – they need to start lending.’
The Fine Gael TD also said credit unions should ‘be looking at increased lending, not just for mortgages, but for schemes like retrofitting or housing association schemes’.
She added: ‘The objective is to empower credit unions to work together, so if one credit union doesn’t do mortgages, prospective clients will be passed to a different branch.
‘The ambition is to ensure members should be able to get a mortgage and a pass card. Credit unions can stay small, but they can advise customers what branch to go to for bigger loans.
‘Credit unions can play a key role in building an alternative retailing bank sector. Banks are in flight from towns, there are credit unions across the country – the infrastructure is already there.
‘Banks are closing down ATMs in rural Ireland. Credit unions are opening ATMs, not for profit but as part of their service to the community ethos.
‘It is important in a rural town to have access to cash at 2am. Credit unions recognise this.’
The Minister of State said that the Government and credit union members across the country together ‘can build a really strong network’.
She added: ‘They [credit unions] are the most trusted brand. People want the opportunity to secure a mortgage with a credit union rather than a bank.’
