Dilosk, the first lender to enter the Irish mortgage market after a string of exits in the wake of the property crash, has held back – for now, at least – just as new home lending is on track this year to hit highs. levels last seen in 2008.
The non-bank lender, which trades under the ICS Mortgages brand which it acquired from Bank of Ireland in 2014, unveiled the first round of Irish mortgage rate hikes in years in March by raising rates on its main rate fixed for three to five years. -evaluate the products. It was quickly followed by rivals Finance Ireland and Avant Money.
Three weeks ago, ICS tightened its lending criteria, saying it was temporarily restricting new home loans to 2.5 times borrowers’ gross income, up from 3.5 times the current limit set by the Central Bank for the most loans. First-time buyers approaching ICS for a mortgage must now have a 20% down payment, while movers must DIY 30%. These are also more restrictive than the regulator’s already strict rules.
Then, earlier this week, it announced increases to its variable rates, starting in October, effectively knocking it out of the races in the already less competitive segment of the mortgage market. (ICS started out in the buy-to-let market in 2016 before offering homeowner loans in late 2019.)
The government experienced the rise in market rates on Thursday when it had to pay a rate of almost 2.22% to sell benchmark bonds, due in 2032, at an auction.
These measures underscore how non-bank lenders, who depend on capital markets rather than deposits for funding, are on the brink when financial markets turn sour. Banks, on the other hand, are awash with excess deposits that faced a negative charge when stored at the European Central Bank until recently.
Market borrowing costs, meanwhile, have soared across the euro zone over the past eight months as the ECB cut net bond purchases under its multi-billion dollar stimulus packages. euros and started to raise its key interest rates in an attempt to curb galloping inflation.
News this week that eurozone inflation hit a record 9.1% in August – a multiple of the ECB’s 2% target and fueled by soaring energy prices – prompted a slew of economists to predict that the central bank’s governing council will follow its July half-percentage-point hike in its core rates with an aggressive 0.75-point hike next week.
The government saw a market rate hike on Thursday when it had to pay a rate of almost 2.22% to sell benchmark bonds, due in 2032, at an auction – the highest price that the state had to offer to get money over 10 years. since 2014.
But the real volatility has been in short-term debt markets, as every other statement from a central banker these days is analyzed for clues about where rates are headed. ICS, which currently only offers three- to five-year loans in the fixed rate space, has been most exposed to this among non-banks.
By contrast, Finance Ireland, which started providing mortgages in 2018, offers fixed rates up to 25 years and has been known to write most of its new business in the 10-15 year bracket at the moment. Prior to Money, the unit of Spanish banking group Bankinter which entered the Irish mortgage market two years ago, offers fixed rates for up to 30 years.
ICS’ business model is based on initially borrowing from large investment banks to lend to clients, before refinancing loan pools in international bond markets through the sale of residential mortgage-backed securities (RMBS) .
There has been strong speculation in the market that ICS’ recent decision to cut new loans sharply was due to it maximizing its bank credit facilities at a time when the RMBS market, although it is not entirely closed, is not really inviting.
However, sources say ICS has around €600m of remaining lending capacity from a €900m facility – its largest ever – agreed with three international banks several months ago. The company is also reportedly in talks with overseas pension and insurance companies to open up a new avenue of loan funding – or so-called term funding. The Netherlands is the most advanced market in Europe for this type of activity.
Meanwhile, ICS is expected to try to secure an RMBS deal in the last quarter of this year – either in the public markets or through a deal with a small group of private investors – when investors are expected to have a better idea of where central bank rates are headed. A company spokesperson declined to comment.
However, he said ICS’ full-year mortgages are on track to reach 800-850 million euros, up from 530 million euros last year. That would equate to a share of up to 6.5% of the €13 billion in new Irish mortgages that bankers and economists expect to provide this year. Market sources say, however, that most of these commitments had already been committed before ICS tightened its criteria.
“Our continued growth is supported by careful management of our loan portfolio and in response to the continued volatility in international financial markets, as well as changing interest rates, we have introduced a number of changes to our mortgage interest rates and our lending policies,” the spokesperson said.
ICS’ self-proclaimed conservatism may well appeal to its senior lenders and the pension and insurance money it courts, but it has badly tarnished its reputation with mortgage brokers.
“ICS Mortgages continues to actively lend to both the owner-occupied and buy-to-let markets, through brokerage and direct lending channels, with a strong pipeline of activity into Q4 2022 and beyond. “
ICS’ self-proclaimed conservatism may well appeal to its senior lenders and the pension and insurance money it courts, but it has seriously tarnished its reputation with mortgage brokers. These folks are responsible for about 45% of mortgages taken out in the state so far this year, down from a low of about 14% after the housing crash.
It also makes Dilosk, the subject of perennial takeover speculation that escalated earlier this year, a far less attractive target.
The company, led by chief executive and co-founder Fergal McGrath, is said to be at least looking for new investment and 14 per shareholder Chenavari is known to be looking for an exit.
The perfect time would have been a year ago, observers say, when market funding continued to be ultra cheap, big lenders Ulster Bank and KBC Bank Ireland signaled they were pulling out of the Republic and ICS offered real competition.