Big fears of mortgage competition after lenders cap loans at two-and-a-half times salary


A mortgage lender is set to limit the size of new home loans to just two-and-a-half times income for the first time.

It’s a move that will spark major fears of a collapse in competition as Ulster Bank and KBC leave Ireland.

ICS Mortgages’ move to severely restrict its lending will give AIB, Bank of Ireland and Permanent TSB enormous market power.

They are already benefiting from the planned exits of Ulster Bank and KBC and have boosted their mortgage business by buying mortgage books from the two exiting banks.

ICS’ lending cuts raise major fears about competition in the mortgage market at a time when the European Central Bank has embarked on a tough plan to hike interest rates.

Mortgage experts said cutting mortgage rates by non-bank lenders such as Dilosk-owned ICS Mortgages and Finance Ireland, along with Avant Money, owned by a Spanish bank, has kept rates competitive so far.

Although Dilosk is a niche player compared to big banks like AIB or Bank of Ireland, Dilosk has over €1.4 billion in mortgage loans on its books and thousands of customers.

Figures earlier this week showed that Ireland was the only country in the euro zone to see mortgage rates fall in June.

And the gap between home loan rates here and the rest of Europe has narrowed in recent months. Now there are fears that banks will find it easier to raise interest rates.

ICS Mortgages told brokers that it is restricting residential mortgage lending because it has “exceeded our issuance level for 2021 and coupled with a strong pipeline for the remainder of the year, we expect to significantly exceed our 2022 business guidance.”

Non-bank lenders get their funds from the markets, which exposes them to rising market interest rates. The banks here finance themselves from customer deposits and currently have a surplus of them.

A recent Central Bank report found that the funding model for non-bank lenders makes them more vulnerable to funding costs than banks.

ICS, which has raised its interest rates twice this year, has now told brokers that couples need a combined income of at least €100,000 to qualify for a mortgage.

It will only lend two and a half times the income of the applicants, compared to the three and a half times imposed by the regulators.

Bonuses and other variable compensation are not taken into account when calculating applicants’ earnings.

First-time buyers are only eligible for 80 percent of the property’s value. This number drops to 70 pieces for used buyers. There will be no capital release on applications from transfer applicants and applications from self-employed persons will be evaluated on the basis of directors’ salary or drawings only.

Broker Michael Dowling said the restrictions meant very few applicants would meet loan approval criteria.

“If every other lender did that, it would shut down the market,” he said.

He said ICS Mortgages had effectively said it was closed to mortgage business at the moment. “This is welcomed by the banks as they now have a free hand. It’s not good for the market,” said Mr. Dowling.

The non-bank lender was formed when Bank of Ireland was forced to sell its ICS brand in 2014.

ICS/Dilosk Chief Commercial Officer Ray McMahon told Brokers, “We are working to improve our level of service, continue to diversify our funding and develop a number of exciting new products with innovative features. We look forward to advancing these initiatives as the securitization and hedging markets normalize.

“Once markets normalize, we intend to reverse all of these temporary changes. Our buy-to-let criteria remain unchanged.” Big fears of mortgage competition after lenders cap loans at two-and-a-half times salary

Fry Electronics Team

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