‘Credit unions are stepping up’ – they are now the cheapest lenders for those seeking a mortgage

Repayments on a typical mortgage from a credit union are around €720 a year less expensive than borrowing from a bank or a non-bank lender, new research shows.

Around 100 credit unions are offering mortgages, with the sector reporting a surge in growth in home-loan lending.

New figures show that credit unions have the lowest interest rates on mortgages for first-time buyers, switchers and movers.

The average mortgage interest rate being charged by credit unions is 3.72pc, according to data from a credit union platform that handles the majority of mortgage approvals in the sector.

This compares with an average new mortgage rate for banks and non-banks across the market of 4.27pc, according to Central Bank statistics.

The Central Bank has confirmed that the 4.27pc figure does not include mortgage rates for credit unions.

Calculations based on a €200,000 mortgage over 20 years show that the monthly payments on an average credit union home loan at 3.72pc are €1,070.

This is €60 a month less than the monthly repayments on a new mortgage from a bank at a rate of 4.27pc. Over a year, borrowing from a bank works out at €720 a year more expensive.

Some 70,000 homeowners are coming off fixed rates this year, while first-time buyers are being squeezed by rising rates and an ongoing rise in property prices. Experts say this means credit unions can be a viable option for these borrowers to avoid some of the huge increases in interest rates they are facing.

One of the representative bodies for credit unions, the Credit Union Development Association (CUDA), has carried out an analysis of approvals going through a mortgage support system it has put in place.

It shows credit union are on track to provide €150m or more in mortgage offers this financial year. The analysis conducted on the Sam (System for Application Management) platform shows the average mortgage amount has increased by 70pc since 2018.

It has gone from around €109,000 in 2018 to €185,000 last year.

The average property value is now €342,000.

The mortgage term has increased from 18 years in 2018 to 23 years on average in 2023.

More than a third of borrowers are individuals, while the remaining 65pc are couples.

Credit unions processed around €200m in mortgage lending last year.

They are on course to lend around €1bn in mortgages in the next three to four years.

Across the sector, a total of 1,800 credit union mortgages were issued last year, up 80pc on the previous year.

New legislation that came into effect recently will soon allow credit unions that do not offer their members a mortgage to refer customers to a nearby credit union that does offer home loans.

CUDA chief executive Kevin Johnson said: “The phenomenal growth in lending is driven by an increased appetite for credit union mortgages as well as the increased ability of credit unions to provide mortgages.

“The demand from members is clear, they want an alternative to the banks and credit unions are stepping up.”

He said legislators have also encouraged credit unions to increase their lending and, arising from the legislative changes signed last February, credit unions will be permitted to offer a service or product such as a home loan to a member of another credit union under a formal arrangement with that other credit union in the last quarter of this year.

This effectively means that every credit union in the country will be able to offer mortgages, Mr Johnson said.