Finance Ireland extends controversial mortgage drawdown deadline

Finance Ireland, the State’s largest non-bank lender, has decided to extend the period for mortgage applicants to draw down loans before a series of rate hikes come into effect, following broker pushback against the five days’ notice it gave would-be homeowners to wrap up deals.

The company announced on Monday last week that it was raising the cost of its variable and new fixed rates for mortgage products by between 1.5 and 2 percentage points, giving customers with existing loan offers until the close of business on Friday to draw down their loans at lower rates. The new rates took immediate effect last week for new business.

The controversial time frame was criticised by the Association of Irish Mortgage Advisers (AIMA), which said the vast majority of clients of its broker members who were close to closing on home purchases or switching would be unable to meet the deadline. The group warned that such a short drawdown window could result in “the loss of deposits and house sales falling through”.

Finance Ireland, led by chief executive Billy Kane, said on Monday evening that customers who had loan offers as of September 30th will be given until Friday October 28th to draw down loans at the lower rates.

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“The company has written to brokers today who will advise their clients as required,” it said.

Finance Ireland relies on its 41 per cent shareholder, UK investment house M&G, for initial funding to write mortgages. It then typically refinances pools of mortgages in international bond markets, where the cost of funding has jumped in recent months as leading central banks, including the European Central Bank (ECB), hike interest rates to rein in soaring inflation.

Finance Ireland, which entered the mortgage market in 2018 and accounts for about 5 per cent of new home lending activity, uses the broker channel to sell its products.

It introduced the first 20-year fixed rate home loan in the State last year. The rates on its 20-year product have risen from 4.6 per cent to 5 per cent for new customers, depending on the size of loans relative to value of underlying property.

More than 80 per cent of Finance Ireland’s loan applications in the past year have been for fixed terms of 10 years or more, as customers look to lock in certainty in a period of widely forecasted interest rate increase, according to the company.

While the other two non-bank mortgage lenders in the market, ICS Mortgages and Avant Money, have raised rates in certain products since the ECB started increasing rates in late July, the mainstream banks are believed to be waiting on each other to make the first move. ICS Mortgage also tightened its lending criteria in August.

The ECB has hiked official rates by 1.25 percentage points since late July. There is a growing view in the market that the Frankfurt-based organisation will announce another aggressive 0.75 of a point increase later this month, with euro zone inflation running at a record 10 per cent as of last month, five times the ECB’s targeted rate.