Credit Union mortgages have attracted media attention since October 2018 when the Central Bank commenced a public consultation for review of the Credit Union lending regulations. This is with a view of increasing the value of loans available to mortgage lending by credit unions. The proposed changes may increase credit unions capacity for home lending from €175m to €861m.
The Minister for Finance announced that ‘The Central Bank is currently in the process of reviewing the submissions received and expects to publish a feedback statement and draft regulations in the second half of 2019’.
At present, across the Republic of Ireland, more than 100 credit unions are offering mortgages to their members.
How does a credit union mortgage work?
The Irish League of Credit Unions (ILCU) coordinates a credit union mortgage ‘shared service’ so that participating credit unions can have the support and assurance they need to be successful in residential mortgage lending.
Each participating credit union sets its own mortgage interest rate at local level, and will also make the final lending/approval decision. The ILCU will coordinate and provide centralised, administrative support through the shared service, or Mortgage Hub.
Every credit union is owned by its members, the people who save with it and borrow from it. Mortgage provision by Credit Unions is regulated by the Central Bank of Ireland and the current lending limitations are that no more than 10% of the credit union loans can be for over 10 years, i.e. mortgage loans. Therefore, there are approximately 2,700 smaller mortgages available through credit unions in Ireland.
What are the interest rates in comparison to other lenders?
The Credit Unions offer mortgage variable rates from 4% per annum, with average rates around 4,5%. The credit unions have put forward a loan product CUhome at 4% per annum which is still well over the average mortgage rates in Ireland at the moment.
Therefore, the main benefit from a credit union mortgage may not be the lower interest rates. Banks offer rates from 2.7% and often longer terms to repay the mortgage. So, what are the potential advantages in seeking a mortgage from your credit union?
What are the benefits of Credit Union mortgages?
In some cases, a Credit Union can be a right fit for you. Some of the benefits include:
- All lending decisions are at local level, not in some remote head office. Hence, Credit unions can be more approachable and flexible.
- Credit unions excel in personal service and your application will be dealt with by your local credit union staff. They know you there.
- Lower income applicants may have a better chance with their Credit Union as they may have an established borrowing and repayment record.
What are the drawbacks of Credit Union mortgages?
Some of the drawbacks to consider before applying for a mortgage at your local credit union:
- Credit Unions can lend only for residential purchases, so if you are looking to buy a second home or a buy-to-let property, they will not be an option for you.
- You can only apply at a credit union you are a member in it.
- There are limits to the amount you can borrow – up to €320,000 for Dublin, Cork, Kildare, Galway, Louth and Meath and €250,000 for everywhere else. With the house prices at the moment, this amount is very restrictive.
- Credit unions are risk averse and will not lend easily if you do not have a good credit record. Credit Unions deal with arrears same as a bank, and you can lose your house if you do not keep up your repayments.
Can a mortgage broker deal with Credit Unions?
Credit Unions do not deal with mortgage brokers. You will need to apply with your credit union yourself. Therefore, this will be an additional application your application with a mortgage broker.
Credit unions may be able to lend higher amounts and better interest rates, but this may yet take some time. So, if it means that you have to rent for another two years in the hope that your local credit union will be able to arrange a mortgage for you, you might be at a loss already.
Is it worth waiting for Credit Union mortgage lending changes?
It is always better to live in the moment and don’t put off anything for another day. Credit Unions may be in a better position to lend, but there will be no news for another while.
If you are in a position to get a mortgage today, you will be ahead in a property market with rising prices every day. Give it a go, apply today! Mortgage123 charges no fees, we are one of the largest mortgage brokers in Ireland, and you really have nothing to lose. If you are not ready to apply yet, we can help you prepare and stay with you for the rest of the mortgage journey to your home!