Up to 27,000 mortgages held by funds could switch providers, says Central Bank

The Central Bank estimates that up to 27,000 Irish home loans snapped up by international funds in the wake of the financial crisis may be eligible to switch to active lenders under criteria agreed by the mortgage industry last month.

The figure was contained in a letter sent this week by the Central Bank deputy governor Derville Rowland to Sinn Féin finance spokesman Pearse Doherty in response to questions.

To be eligible to switch under the new guidelines agreed in early September by the State’s main mortgage lenders, customers of non-bank non-lenders (NBNLs) need to be making full capital and interest repayments on their mortgage and have no arrears in the past two years.

Tracker rates

“We estimate, based on the criteria of accounts which have not been in arrears for two years or more, and paying full capital and interest, that there are approximately 27,000 accounts currently in NBNLs that may potentially be able to switch,” Ms Rowland said.

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Some 15,500 of the 27,000 accounts are on European Central Bank (ECB) tracker rates. Tracker loans handed out prior to the 2008 crash and priced at a typical one percentage point margin above the ECB rate would have seen their annual rate increased from 1 per cent to 5.5 per cent as a result of a series of central bank rate hikes since July 2022.

The average Irish new mortgage rate in July — dominated by fixed-rate loans — was 4.06 per cent, according to the latest Central Bank data. However, the ECB has hiked official rates by 0.5 of a point since then.

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About 11,000 of the loans eligible for a switch are on variable rates, which NBNLs have generally increased as wholesale and official rates have trended higher since the middle of last year. The average variable rate across non-bank loans serviced by Pepper, for example, stands at about 7 per cent though some mortgage holders are paying 9 per cent.

Most of the 27,000 NBNL accounts that were never in arrears and stem from loans acquired by investment funds from foreign banks such as Bank of Scotland (Ireland) and Danske Bank as they exited the Irish retail market in the wake of the financial crash more than a decade ago. A large portion of the loans was subsequently refinanced on bond markets through a process known as securitisation.

Arrears problem

As of June, about 112,630 of the 712,347 private dwelling home loan accounts in the State were held by non-banks, including active lenders in the State and non-lenders. Almost 23 per cent of the accounts held by non-banks were in some form of arrears at the time.

Brendan Burgess, a consumer advocate and founder of askaboutmoney.com, said that an estimated 35,000 borrowers with non-bank non-lenders — or what are often referred to as vulture funds — have been unable to switch to mainstream lenders, as they are either in arrears, in alternative payments arrangement or had previously been in arrears.

“The vulture funds can charge them what they like and neither the Government nor the Central Bank will do anything to help them,” he said.