It was announced today that the Solution Centre, an innovation hub owned by credit unions, has paved the way for credit unions to enter the mortgage market.
A group of the country’s strongest credit unions established the Solutions Centre, a product developing house facilitated by CUDA, which supplies product development and business supports to the Credit Union sector and has embarked on an ambitious business transformation programme for the sector.
The Solution Centre is inspired by the Solution Center in Canada, a country where credit unions have long since thrived by offering very competitive mortgages, consumer loans, business finance, current accounts and investment options, driving down the cost of finance and expanding other financial offerings for Canadians. The two organisations have a formal working arrangement in place.
Having built an end-to-end mortgage support framework, including assessment and standardised administration processes, it's thought there will be significant take-up amongst members of participating Credit Unions for its new offering.
The new services is initially being made available to credit unions representing almost 1m credit union members. While each Credit Union will make the final underwriting decision on a case by case basis, this scheme is unique in that they will have ongoing access to specialist mortgage and legal expertise to support their own internal resources.
Credit Unions are subject to generic lending restrictions through regulation which dictates that only 10% of their loan book can be for terms greater than 10 years with the possibility of that being extended to 15%.
Heretofore, there were very few credit unions with the capability to provide such loans which is why only 2% of the available €5bn has been lent out on terms over 10 years. This means that Credit Unions retain a balance of 8% or €400m to lend out and that this could be a lot higher, in light of the significant improvement in Board and management capabilities required under 2012 Credit Union Act.
According to the Solution Centre, Credit Unions are massively 'under lent' with hundreds of millions of Euro currently available to borrowers. The Centre believes that delivering greater competition and choice for consumers will put greater pressure on the existing lenders, and could finally force real competition into the market.
Commenting on the launch, Kevin Johnson, CEO of the Credit Union representative body CUDA who manage the Solution Centre, said, "Given the demand, we have spent the last 10 months developing this mortgage framework, and see it as a significant milestone for the Credit Union movement. Through the Solution Centre we have been able to help many credit unions make the move into the mortgage market, and are moving ever closer to our goal of making Irish Credit Unions full service outlets for consumers’ financial needs."
He added, "Unlike banks, Credit Unions aren’t required to deliver profits for shareholders so anything we offer is priced to meet the needs and demands of members, and credit unions are ideally placed to fill the gap in the market left by Building Societies."
Source: www.businessworld.ie
