Non-bank lenders now account for 13% of new mortgage lending

Brendan Burgess

Brendan Burgess

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Non-bank lending to mortgage borrowers has grown in importance in recent years

The Central Bank has today published a Financial Stability Note, “Non-bank mortgage lending in Ireland: recent developments and macroprudential considerations”. The Note examines the growing role of non-bank financial intermediaries (NBFIs) in the Irish mortgage market since 2018.
www.centralbank.ie www.centralbank.ie

  • Non-bank lenders now account for 13% of the new mortgage lending market.
  • Non-banks account for 10% of new lending to first-time buyers and second-time and subsequent buyers. The profiles of these borrowers are very similar across retail banks and non-banks.
  • Non-banks appear to play an important role in enhancing competition on interest rates for consumers, but may increase rates more quickly than banks due to their different funding structure.
The Central Bank has today published a Financial Stability Note, “Non-bank mortgage lending in Ireland: recent developments and macroprudential considerations”. Authored by Edward Gaffney, Christina Hennessy, and Fergal McCann, the Note examines the growing role of non-bank financial intermediaries (NBFIs) in the Irish mortgage market since 2018. The Central Bank has heightened its focus on the evolution and risk profile of NBFI lending in recent years. Previous Central Bank research has found that around 28% or €1.6bn of SME lending in 2020 was provided by NBFIs. In addition, total lending growth of almost €1bn between 2019 and 2021 in the mortgage market is attributable almost entirely to NBFIs. This heightened focus is therefore particularly important in the context of the Central Bank’s mandate to protect financial stability.

Note: It appears that NBFI - means Avant, Finance Ireland and ICS. (Avant is a bank but does not take deposits in Ireland so is included as an NBFI)
 
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RCFs (Retail Credit Firms) and retail banks are equally subject to financial conduct and consumer protection requirements,

and RCF lending is also regulated under the Central Bank of Ireland’s macroprudential mortgage measures.

However, RCFs and NBFIs are not subject to the same regulatory capital requirements (such as the risk-weighted asset regime) as banks.
 
Finally, the Note considers the role of non-banks in price competition for consumers. Since 2018, 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 underlines, the changing customer base and the different funding model of NBFIs are important factors. As NBFIs are more reliant on market funding – unlike banks, which can rely on more stable customer deposits – NBFIs may be more sensitive to global financial market developments. As a result, NBFI interest rates may rise sooner and to a greater degree than those of banks.
 
It seems to be part of a worldwide trend.

Over 50% of mortgages in the USA were provided by non-bank lenders in 2020
 
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Figure 3: share of non-banks in new mortgage lending 2018-2021 by market segment

NBFIs now account for ... 29 per cent of new lending ... refinance (those switching lenders
without moving home) markets.

31% of buy to lets.

By contrast, they comprise only 10 per cent of the larger first-time
 
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There is little difference in the profile of the borrowers between banks and non-banks. In other countries, the non-banks engage in more risky lending.
 
Very interesting that 95% of Non-Bank loans are through brokers. Is that the model they operate or do you go directly to Avant, etc for a mortgage?
 
The growing share of non-bank lenders is proof that the Irish mortgage market is not uncompetitive.

What's going out of date is a bricks-and-mortar presence and funding mortgages from deposits.

I have zero inside info but I'd expect another one or two non-bank lenders in the market by mid decade.
 
Are we going back to the old days when banks were for banking and "building societies" were for mortgages?
 
Savvy said:
Very interesting that 95% of Non-Bank loans are through brokers. Is that the model they operate or do you go directly to Avant, etc for a mortgage?
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I was thinking the same - it would indicate that some have direct sales channels?
Either way its good for the consumer. It makes sense that banking be about, well, banking.
 
lff12 said:
Are we going back to the old days when banks were for banking and "building societies" were for mortgages?
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My parents have literally used Bank of Ireland their whole adult lives for everything: current accounts, savings accounts, cheque books, mortgage, loans, credit cards.

Those days are over though and banking is unbundling.

In future people will for example use Revolut for a current account, a bank for a savings account, Apple Pay for payments, and a non-bank like Avant for a mortgage.
 
NoRegretsCoyote said:
My parents have literally used Bank of Ireland their whole adult lives for everything: current accounts, savings accounts, cheque books, mortgage, loans, credit cards.

Those days are over though and banking is unbundling.

In future people will for example use Revolut for a current account, a bank for a savings account, Apple Pay for payments, and a non-bank like Avant for a mortgage.
Click to expand...
That's what people did in the past - they held current accounts in a bank, went to a building society for their mortgages, and they put savings into the credit union. The bundling of services wasn't the norm until the 1990s, and its time has been brief.
 
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