Finance Ireland’s decision to quit the mortgage market will have little effect on the market, as it drastically reduced its home loans offering three years ago as interest rates soared, according to analysts.
“It has more or less been absent from the mortgage market since the rate hiking cycle began so this will not have a large impact on the market shares for the remaining players,” said Denis McGoldrick, an analyst with Goodbody Stockbrokers.
The Irish Independent reported on Tuesday that Finance Ireland, led by chief executive Billy Kane, has decided to stop issuing mortgages. The existing home loans are managed by loan servicing company Pepper Advantage and this will remain the case.
Finance Ireland will continue lending in the car market, in the commercial real estate sector, and to small businesses.
Finance Ireland had been effectively out of the residential mortgage market for some time as its lending rates were high.
Finance Ireland’s best rate currently is 5.35 per cent, for seven years fixed, for people borrowing less than 50 per cent of the value of the property. That is some 2.35 percentage points higher than the lowest rate currently available in the market.
Mr Kane has repeatedly spoken about how mainstream banks have been “actually cross-subsidising” their mortgage books with cheap deposit funding. Close to 90 per cent of customers’ money in Irish banks is in on-demand or current accounts, which are earning little or nothing, even as they offer rates of up to 3 per cent on certain savings products.
Nonbank lenders like Finance Ireland raise their funds through the wholesale banking and bond markets, where borrowing costs soared in recent years as the European Central Bank (ECB) hiked official rates.
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Still, there has been a re-emergence of competition from nonbank lenders in the mortgage market in recent times, with ICS Mortgages, which restricted lending a few years back, moving within the past year to lower rates and ease lending restrictions as the ECB cut rates again.
Another start-up, Nua Mortgages, launched last summer. Elsewhere, Moco, which is actually owned by a bank, Austria’s Bawag, has been making inroads into the market in recent times.
Still, the three main banks in the State, AIB, Bank of Ireland and PTSB, controlled about 92 per cent of the market last year.
