Mortgage customers have been hit with nine consecutive interest rate hikes from the European Central Bank (ECB), leaving many up to €5,000 worse off a year.
Under new legislation introduced next month, the community lenders (Credit Union’s) will be given significantly greater capacity to lend to homeowners and businesses.
As part of the new reforms being piloted through the Dáil by junior finance minister Jennifer Carroll MacNeill, credit unions will be able to provide up to €5bn in a major shake-up of the mortgage market.
The reforms will also free up credit unions to provide a range of banking services in rural parts of the country the banks have abandoned.
Deputy Carroll MacNeill FG stated: ‘One of the features of Irish towns as I travel around is that the banks have moved out and the credit unions are still there.
‘The connection credit unions have with their customers is completely different. People who have moved from working in banks to working in credit unions speak about a completely different attitude.’
In a thinly-veiled criticism of the pillar banks who benefited from a €64bn taxpayer bailout following the property crash, she added: ‘Banks appear to be looking for ways to avoid helping people. In credit unions it is the opposite.’
The minister added that credit unions could offer more competitive rates for members who have seen the cost of servicing their home loans soar in recent months.
She further commented: ‘When it comes to interest rates for mortgages, credit unions are very competitive. They don’t have to borrow in the wholesale market, which means their rates are similar or sometimes lower than the banks.’
Ms Mac Neill’s Credit Union (Amendment) Bill will be introduced in the Dáil next month and has the firm backing of her government colleagues.
Under the bill, credit unions will be allowed to loan out double the amount it currently can for mortgages and commercial lending.
Credit unions across the country currently have more than a combined €20bn in savings.
Because of strict regulations, the community lenders are currently only allowed to lend out 7.5% of their assets.
But the new reforms will allow different branches to band together and pool their resources in new corporate groups of credit unions, who will be able to lend out 15% of their total assets.
Under the new structure, members of small credit unions seeking a mortgage or small business loan will be referred to bigger branches who will have the financial firepower to release the funds.
The Government hopes the move will provide real competition in the mortgage market, which is dominated by a handful of banks and financial institutions who have been accused of putting profits before the needs of their customers.
One financial source familiar with the legislative changes said: ‘We want credit unions to have the freedom to offer precisely the same services as banks, be it credit cards, mortgages, commercial loans, even ATM’s.
‘This legislation offers them the freedom to do this either by referring members or pooling their resources. If they combine together, they will be able to offer more and bigger loans, but if a credit union wants to stay small, it stays small.’