Credit Unions have the potential to offer badly needed competition in the mortgage market but that rules on lending restrictions will have to change to allow this to happen.
Credit Unions are operating in a difficult trading environment at the moment with a collapse in investment returns, onerous regulation and insufficient lending activity. A small number of Credit Unions are offering mortgages but they are severely constrained by the lending restrictions which allow a Credit Union to lend a maximum of 10% of its loan book over a period of greater than ten years.
In reality, for an individual Credit Union, this restriction means that even lending a small number of mortgages will bring them up to their 10% restriction very quickly. Given the investment that Credit Unions have to make to move properly into the space of mortgage lending, this lending restriction effectively stops them in their tracks. Engaging in longer term lending such as mortgages offers many advantages for Credit Unions including greater stability around their income levels.
At a time when our banks continue to charge excessive mortgage interest rates, you would think the State would be bending over backwards to encourage new entrants to the mortgage market, such as Credit Unions. However, the current government seems to have little regard for the Credit Union movement and has done nothing practical to assist the growth and development of the sector.
As an example, the Credit Union Advisory Committee issued a report to the Minister for Finance last June with a series of recommendations and a promised implementation group still has not even been convened. I will be pressing the Minister on this and other Credit Union related issues in the Dáil in the coming weeks.