We welcome news that credit unions are now entering the mortgage market in Ireland.
The loan book has historically been one of the most significant assets on the credit union balance sheet. It is also the biggest source of income for credit unions. We find that credit unions are now experiencing a significant fall in the level of their loan books and as a result, a decline in the level of loan interest income. This decline in loan interest income, coupled with a fall in investment returns, is having a serious impact on credit unions’ ability to cover their overheads, pay dividends to their members and in extreme cases, to survive.
One of the biggest challenges facing credit unions is to come up with new loan products that are relevant to their members’ needs and to offer these loan products at attractive interest rates.
At present, credit unions can only issue up to 10% of their loan books in the form of long term lending, although we understand that the Central Bank is in the process of reviewing this limit. This could pave the way for many credit unions with significant funds available to lend, to offer longer term mortgage products to their members.
Whilst this is welcome news, we would advise those credit unions that are considering entering the mortgage market to ensure they have the right policies and underwriting procedures in place before making any decision on how they will proceed. Consideration should also be given to whether the credit union needs to outsource some of the processes such as legal and credit control where it feels that it does not have the necessary expertise in-house.
We believe that with careful planning, there are opportunities for credit unions in the mortgage market. There is undoubtedly a demand for new products in the market but we advise credit unions to exercise caution in relation how they proceed. With greater loans comes greater risk.
We look forward to watching how this plays out in the coming years.