More non-bank lenders will enter market – mortgage chief

The chairman of the Association of Irish Mortgage Advisors (AIMA) Trevor Grant said he expects “a couple of” non-bank lenders to enter the State’s home loans market in the next 12 months as Ulster Bank and KBC Bank Ireland prepare to exit and new lending continues to grow.

The AIMA has calculated that the share of mortgage drawdowns in the market stemming from the broker channel has grown to 40.7 per cent as of the third quarter of this year, up from 27.4 per cent two years earlier and a post-crash era low of about 14 per cent.

The recent pick-up comes as non-bank lenders such as Finance Ireland, which entered the mortgages space in 2018, Dilosk, which started offering owner-occupier loans in late 2019, and Avant Money, which launched its offering last year, gain traction in the market. In addition, Bank of Ireland re-entered the broker market in late 2018.

Non-bank lenders accounted for about 10.5 per cent of drawdowns in the first half of this year, about twice their market share a year earlier.

While Ulster Bank and KBC Bank Ireland highlighted the high level of capital reserves Irish banks must hold against mortgages as they decided to exit the market earlier this year, non-bank lenders are not bound by the same capital rules, as they do not fund themselves by deposits. Most rely on the international bond markets to ultimately fund their loan books.

Most of the loans of Ulster Bank and KBC Bank Ireland, who had a combined 25 per cent share of the mortgage market, are being taken over by AIB, Bank of Ireland and Permanent TSB.

“I think it’s likely there will be a couple of more non-bank entrants into the market [in the next year],” said Mr Grant, who is also a director of Affinity Mortgages.

“These guys are smaller and more agile than banks. They don’t have the same overheads, branch networks and staff levels. Their distributors, the brokers, only get paid when they place business with them.”

Economists see the mortgage market topping €10 billion this year before rising to in excess of €12 billion in 2022 as house completions continue to grow.

The average interest rate on a new mortgage in the Republic, 2.72 per cent as of September, is the second-highest in the euro zone and more than double the currency bloc’s average rate.

An analysis by Goodbody Stockbrokers in July said the capital charge in the Republic on a bank home loan equates to 0.5 percentage points of a mortgage rate, 2.6 times the EU figure. Irish funding costs, at 0.4 points, are almost a third higher, while loan impairment charges account for 0.2 points locally, compared to 0.12 across the EU.

But the real difference is in running costs, including staff, IT spending, levies and other general overheads. The stockbroking firm estimated that operating costs account for 1.05 points of the average Irish mortgage rate, compared to 0.65 points across the EU.