Credit unions planning a national mortgage brand

Brendan Burgess

Brendan Burgess

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According to Charlie Weston in today's Indo

www.independent.ie

Credit unions to take on the banks with low-cost national mortgage brand

Credit unions are planning to capture a huge swathe of the mortgage market with a low-cost, no-gimmicks, national mortgage brand.
www.independent.ie www.independent.ie

The document, “Mortgage CUSO Revised Proposal”, promises there will be no gimmicks with its mortgages, and:

  • The mortgage offering will have “competitive pricing”. The document says that often the lowest rates from lenders are short-term introductory ones designed to attract borrowers and grow market share. In some cases, what appear to be great rates have restrictive conditions and attractive short-term fixed rates convert to much higher variable rates. Credit unions will avoid this.
  • The new CU mortgage will not have a lower price for new customers than is charged to existing mortgage holders.
  • The interest rate will come down as more equity is built up in the home.
  • Credit unions could offer discounts of up to 0.25 percentage points on green mortgages.
  • No fees will be charged for paying off a mortgage early, even if it is a fixed rate.
  • Lower interest rates will not be charged on larger mortgages, in contrast to what the banks do.
  • Any change in the interest rates will apply to new and existing customers.
  • For those who get into arrears the credit unions propose not capitalising their arrears. Some lenders capitalise interest and arrears to an extent that borrowers find it difficult to service their loan repayments. The document says credit unions need to “develop and communicate a sympathetic and borrower-friendly policy on debt restructuring and the capitalisation of interest on loans in arrears”.
 
Overall, this is a good approach.

Not offering inducements to attract new business
Not discriminating between new and existing customers

Not sure that they understand what capitalising arrears actually means:

Brendan Burgess said:
For those who get into arrears the credit unions propose not capitalising their arrears
Click to expand...

This makes no sense. The arrears figure is a notional figure. It is the amount of payment in arrears. It is nothing to do with the actual balance on the mortgage. Capitalising arrears does not increase or reduce the balance on the mortgage.

If they are not capitalised, the arrears remain on the mortgage and the borrower's credit record is permanently damaged.
 
Brendan Burgess said:
No fees will be charged for paying off a mortgage early, even if it is a fixed rate.
Click to expand...

I am not sure about this.

While this sounds great, it would have to be reflected in a higher mortgage rate.

Let's say that the mortgage rate today is 5% and that it is expected to rise.

If the CUs issue fixed rates at 5%, people will fix. But if interest rates rise, the CUs margin will fall.

On the other hand, if interest rates fall, people will break out of their fixed rate and avail of a cheaper fixed rate.

So the CUs would have to keep the fixed rates high.

I see no problem with fair early repayment penalties on fixed rates.

Brendan
 
Some pretty significant product and service design assumptions in this proposal, but overall, it should be welcomed (if it ever makes it to market!). Ireland needs more product and service competition, not just more of the same.
 
Will this require a change to primary legislation?

I recall suggesting this in another thread, and one response was that it is currently not possible, due to regulations about CU.
 
I don't think so.

But I suppose it would depend on what they are planning.

I got the impression that it is a centralised brand but that individual credit unions would issue the mortgages and they are free to do that now.

If they want to set up a separate lender, the easiest way to do that would be to set up a Building Society. But that would take the Central Bank a few years to approve.

Brendan
 
All sounds like something dreamt up by a committee, with something for everyone in the audience.

Some of the promises sound unrealistic, others dangerous and impractical.

My bet is that it'll never see the light of day.
 
OK, so the loans become assets of the individual CU, rather than assets of the national mortgage brand.

And the security/collateral is held by the individual CU.

And Individual CU can choose to join this or not.

So this seems more like a marketing/branding/pricing exercise, okay.

One national brand, with one national set of prices/rates, but the legal transaction is between the borrower and the local CU.
 
Protocol said:
Will this require a change to primary legislation?
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Sorry Protocol - I misled you. You are right.

I have been informed that legislative changes going through at the moment allow for the setting up of corporate credit unions, or credit union services organisations.

Brendan
 
I assume some sort of combination of credit unions with a separate legal entity.

Just like you and I could set up a company. Cork Credit Union and Galway Credit Union could set up a jointly owned credit union.

Brendan
 
www.oireachtas.ie

Credit Union (Amendment) Bill 2022

www.oireachtas.ie

Bill entitled an Act to provide for the establishment of corporate credit unions; to amend the requirements and qualifications for membership of credit unions; to alter the scope of permitted investments by credit unions; to provide for changes to the governance of credit unions; to provide for the setting of maximum interest rates on loans by credit unions; to provide for the provision of services by credit unions to members of other credit unions; to provide for the participation by credit unions in loans to members of other credit unions; and for those purposes to amend the Credit Union Act 1997; and to provide for related matters.
 
  • The interest rate will come down as more equity is built up in the home.
Existing banks do this already based on LTV bands. Maybe they will do it differently though
  • Lower interest rates will not be charged on larger mortgages, in contrast to what the banks do.
Do existing banks do this? I thought they just charged lower amounts based on LTV but not the amount of the mortgage.
  • Any change in the interest rates will apply to new and existing customers.
This is already how variable rates work so I assume they aren't talking about that. If they are talking about fixed rates, how does that work. If I am on a fixed rate of 3% and the rate drops to 2.75%, do I get the drop as well? Don't get me wrong that is great for the customer but it isn't really a fixed rate.
 
Brendan Burgess said:
Not sure that they understand what capitalising arrears actually means:

This makes no sense. The arrears figure is a notional figure. It is the amount of payment in arrears. It is nothing to do with the actual balance on the mortgage. Capitalising arrears does not increase or reduce the balance on the mortgage.

If they are not capitalised, the arrears remain on the mortgage and the borrower's credit record is permanently damaged.
Click to expand...
Perhaps they are proposing to not charge interest on outstanding repayment amounts. In the same way that some lenders did not use over payments to reduce the capital attracting interest, but kept it notionally separate.
 
Brendan Burgess said:
For those who get into arrears the credit unions propose not capitalising their arrears. Some lenders capitalise interest and arrears to an extent that borrowers find it difficult to service their loan repayments. The document says credit unions need to “develop and communicate a sympathetic and borrower-friendly policy on debt restructuring and the capitalisation of interest on loans in arrears”.
Click to expand...

I think what they mean about not capitalising arrears is not capitalising interest.

Unpaid interest is put in it's own box or column where they say interest will not be changed on it. But it will still accumulate if repayments remain impaired. And it will still have to be paid or dealt with at some point.

Whereas with the traditional mortgage lenders, interest gets added back into the capital every so often, so interest would be charged on previously unpaid interest.

To an extent you could say it is warehousing of the interest.
 
Connard said:
  • The interest rate will come down as more equity is built up in the home.
Existing banks do this already based on LTV bands. Maybe they will do it differently though
Click to expand...

Correct. Nearly all banks do this. Some don't do it consistently. For example, BoI has the same fixed rate for most LTVs
1690312988599.png


Connard said:
  • Lower interest rates will not be charged on larger mortgages, in contrast to what the banks do.
Do existing banks do this? I thought they just charged lower amounts based on LTV but not the amount of the mortgage.
Click to expand...

Some do. They have lower rates for mortgages >€250k. It makes commercial sense. As a lender I would prefer to have 1,000 €500k mortgages than 10,000 €50k mortgages.

Connard said:
  • Any change in the interest rates will apply to new and existing customers.
This is already how variable rates work so I assume they aren't talking about that. If they are talking about fixed rates, how does that work. If I am on a fixed rate of 3% and the rate drops to 2.75%, do I get the drop as well? Don't get me wrong that is great for the customer but it isn't really a fixed rate.
Click to expand...

Only AIB does this at present. They have the same rate for new and existing customers.

BoI and ptsb have better rates for new customers which existing customers can't avail of.

KBC reduced their variable rates for new customers but refused the lower rate to existing variable rate customers.
 
My Credit Union is offering a variable rate of 2.95% but I havent a clue on the details as there is a waiting list on mortgage applications at the moment. That seems very low given the current interest rates. I have no idea if they are offering fixed rates etc but Ive contacted them to speak to their mortgage advisor
 
Hi Mike

Which credit union?

Is it covered in this thread?

Key Post - List of Credit Union mortgage rates

You should check with your Credit Union to see if they provide mortgages. They all set their own rates, so some may be cheap while others may be expensive. They often make a song and dance about the fact that you can pay off a credit union loan early without penalty. You can always pay off a...
www.askaboutmoney.com

Brendan
 
St.Raphaels CU, the Garda Credit Union, its on your link page. Ive emailed them to go on the wait list to speak to an advisor.
 
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