Aiming to help people secure their starter homes...
The Credit Unions Development Association (CUDA) has called for long-term lending limits to be removed or substantially changed.
In a submission to the Central Bank ahead of its review of macro prudential mortgage measures, the body made a case for three equitable changes to the current rules for new mortgages.
CUDA says credit unions are massively under lent, with billions of euro currently available.
They contend that delivering greater competition to consumers could finally see standard variable rates (SVR) drop below 3%.
Kevin Johnson, CEO of CUDA, said:
"Presently, credit unions are generally only allowed to lend 10% of their loans, on terms of 10 years or more. CUDA believes that this rule should be removed as there are plenty of other prudential regulatory controls in place to ensure the solvency of those credit unions that wish to lend more over the long-term.
"Lending a greater proportion of funds over a longer period would also enable credit unions to offer enhanced long-term savings products with higher interest rates."
CUDA is also seeking a change in the loan-to-income (LTI) limit, currently set at 3.5 times. The body will ask the Central Bank for a slight increase to 3.75 times income.
The Solution Centre, a CUDA-managed innovation business unit, has researched the issues in anticipation of a new mortgage offering and believes that this relatively small change could significantly boost the number of couples on average income that qualify for a typical starter home particularly in Dublin where prices are so much higher.
"A new starter house in Dublin typically costs €300,000 and most people reasonably assume that first time buyers will need a €38,000 deposit under the Loan to value (LTV) rules – 10% up to €220,000 and 20% on the balance.
"But even assuming a higher than average household income of €70,000, the current LTI of 3.5 will mean that they will need a much bigger deposit of €55,000 regardless of whether they qualify for the lower First Time Buyer exemption under the LTV rules.
"If the LTI is raised to just 3.75, this would reduce the deposit required to €37,500 which is still a sizeable deposit, however it is more comparable with the €38,000 LTV deposit requirement."
CUDA also believes that the mortgage lending limits in Dublin and other large urban areas need to reflect that it is a wholly different market to the rest of the country, with much higher purchase prices and far higher rental prices.
"The loan caps have had the, perhaps unintended, but negative consequences of forcing more and more people to remain in rental accommodation in big cities particularly Dublin which is putting upward pressure on rental rates," said Johnson.
"The increase in rents has been a significant contributor to the homeless crisis as people on rent support or supplement are unable to compete with the private sector for increasingly reducing number of properties.
"CUDA believes that the current Central Bank rules are contributing to slowing the migration of people from rental to purchase, which is having a knock on impact on everyone else in the rental sector.”