Finance Ireland decries ‘predatory’ bank mortgage pricing as non-banks squeezed

The head of Finance Ireland, the State’s largest non-bank lender, has claimed mainstream banks are engaging in “predatory pricing” by using cheap deposits to keep down their mortgage rates and squeeze alternative lenders in the market.

Billy Kane, chief executive of the lender, which entered the home loans market in 2018, said the company’s mortgage activity has been “de minimis” in the past year, as it was forced to hike borrowing rates as its own funding costs jumped.

The lender’s five-year fixed mortgage rate, for example, is 6.05 per cent for loans of less than 80 per cent of the value of a property. The same product costs about 4.8 per cent at Bank of Ireland and AIB, respectively.

Still, Finance Ireland’s overall loan portfolio — spanning commercial real estate, car finance, SME lending, and agri-finance — rose by 32 per cent in 2022, according to company executives, who spoke to The Irish Times as the group’s ultimate holding company filed financial accounts. The portfolio covers loans held both on- and off-balance sheet.

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Central Bank of Ireland research has found Irish banks have lagged European peers in passing on official rate increases in the past 15 months to depositors and mortgage holders, leaving savers essentially subsidising borrowers. While the three remaining Irish banks have moved to increase fixed-term rates to as high as 3 per cent in recent months, 94 per cent of Irish household savings are in overnight accounts, earning little or nothing. Non-bank lenders cannot take deposits and must fund themselves in the wholesale and capital markets.

“We now have a situation in the country where three players [the remaining banks] are controlling 96 per cent of the market,” said Mr Kane, adding that is “not in the long-term interest of consumers”, even if borrowers are paying below the odds for mortgages.

He suggested that it will be the second half of next year before Finance Ireland is fully back in the mortgage market. By then, either the mainstream banks will have passed on more mortgage rate hikes or market funding for non-banks will have eased in expectation of central bank reductions, he said.

The accounts for Finance Ireland’s ultimate parent company, FICS Group Holdings, show the commercial real-estate business provided €209 million of new loans last year. This left it with a loan book of €500 million in December, mainly against multiple apartments, industrial and real-estate property and retail and hospitality outlets. Mr Kane said this portfolio “is in extremely good shape”, even if new lending opportunities have slowed this year.

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The chief executive said the motor business “is flying”, after issuing €249 million of finance last year to leave that book at €475 million. It refinanced €250 million of such loans in the bond markets this week.

SME new lending amounted to €44 million “in a difficult market” last year, according to the financial statement, leaving it with a portfolio of €78 million.

New mortgage lending last year was €715 million, driven by activity in the first half of the year, before the European Central Bank started increasing rates. The total size of that portfolio was about €1.7 billion at the end of the year.

UK investment house M&G and US-based Pimco own 90 per cent of Finance Ireland, following a shake-up of the company’s investor base. FICS Group Holdings was set up to execute the deal and the financial accounts covered in the report span from July 2021 to the end of last year.

Mr Kane said the company’s pretax profit for calendar 2022 amounted to €15 million.