Non bank lenders may raise interest rates more rapidly than traditional banks

Non-bank lenders now account for 13% of the new mortgage lending, according to a new report from the Central Bank.

According to the research, the share of new mortgage lending has grown significantly from the 3% market share in 2007 and is viewed as welcome competition as Irish consumers continue to pay some of the highest interest rates in the EU. Their presence is also seen as important in light of the planned departure by Ulster and KBC banks that will see the remaining pillar banks AIB, Bank of Ireland and Permanent TSB further consolidate their positions.

The Dilosk-owned ICS and Finance Ireland are among Ireland’s largest non-bank lenders.

According to the Financial Stability Note, non-bank financial intermediaries (NBFIs) provide credit to borrowers less likely to be served by traditional banks. They can also stimulate competition between lenders; lowering borrowing costs and increasing credit supply.

Significantly, non-banks have reduced prices by substantially more than banks. By 2021, non-banks had lower average interest rates than banks in all segments of the market except refinance. However, the note says NBFIs are more reliant on market funding unlike banks, which can rely on more stable customer deposits. As a result, NBFIs may be more sensitive to global financial market developments and their rates may rise sooner and to a greater degree than those of banks.

Despite their rapid recent growth, new lending by banks continues to dominate the mortgage market. Non-banks account for close to 30% of new lending in the buy-to-let and refinance markets, but only 10% of the larger first-time buyer and second-time and subsequent buyer segments which, combined, account for 85% of new mortgages. However, this segmentation may evolve following the departure of Ulster and KBC.

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