Mortgages to bypass the banks

Start-up lender Frank Money could offer ‘crowdfunded’ home loans from next year.

Ireland’s first “crowdfunded” mortgages, where pension funds and other institutional investors bypass mainstream banks to lend directly to homeowners, could be available from next year.

Frank Money, a newcomer to the mortgage market, hopes to introduce the first home loan with a lifetime price promise since banks withdrew low-cost tracker mortgages at the height of the financial crisis in 2008 and 2009.

The start-up mortgage provider, which is awaiting authorisation by the Central Bank of Ireland as a retail credit firm, has lined up Capita Mortgage Services to manage day-to-day administration, according to plans revealed by the company to mortgage brokers in recent weeks.

Brokers have been told to expect an indicative mortgage rate of 2.8% variable, reviewable every six months. While Ulster Bank and KBC Bank currently have fixed rates as low as 2.99%, their customers are at the mercy of whatever the lenders decide to charge when these deals expire after two or three years.

Frank Money’s founder, Colin Cunningham, was head of Danske Bank Markets in Ireland until 2014, when he left the Danish bank to set up the new mortgage provider.

The lender hopes to attract borrowers with a promise that its mortgage rates will be linked to the cost of funds by a set margin for the life of the loan, similar to the pricing of tracker mortgages.

While the transparent pricing is likely to appeal to established homeowners looking for a better deal, Frank Money has indicated that it will also target first-time buyers. The company declined to comment on its plans.

The crowdfunding model was developed in Denmark, where mortgages are issued by specialist intermediaries and backed by bonds traded on the stock market.

The interest rates paid by homeowners are based on the yields at which the bonds trade, plus a fixed margin charged by the intermediaries.

The arrival of Frank Money coincides with the launch of a buy-to-let mortgage product by another specialist newcomer, Dilosk. The Dilosk product will allow landlords to take advantage of interest-only payments for up to 10 years.

“We’re beginning to see segmentation with specialists such as Frank Money and Dilosk cherry-picking different parts of the market,” said Garry Manning of the broker Omac Mortgages & Finance.

The arrival of new competition should ease some of the pressure on finance minister Michael Noonan to curb the high cost of Irish mortgages, which are among the most expensive in the eurozone.

Despite strong misgivings, Noonan has had to accept proposals to force the Central Bank to regulate the cost of mortgages, as the price of Fianna Fail’s continued support for the minority government.

“The government remains of the view that competition represents the most favourable method of driving down interests rates in a sustainable way without giving rise to possible unintended consequences,” Noonan told the Oireachtas finance committee last week.