A most interesting paper was published by the Oireachtas Library and Research Service this week which showed that at least 7,000 Irish homeowners are being fleeced by vulture funds who were charging distressed people over 8% interest on their home loans. *(This article has been amended, see below).
The paper, authored by Barry Creighton – a Senior Parliamentary Researcher in the Library and Research Service, specialising in economics – is one of several published by the Oireachtas body for the new Dáil and Seanad on key issues. It looks at the impact of mortgage interest rate rises on customers with non-banks.
The non-banks examined in the paper are Retail Credit Firms (RCFs) – which Creighton notes have become more common in the Irish mortgage market. In 2023, the Central Bank noted that the share of Private Dwelling House mortgages held by these entities rose from almost 7% in 2017 to over 16% by the end of 2022.
It shows that, as of June 2024, some 7,000 private home mortgage holders were paying an interest rate of over 8% – and that all of those were customers of a type of Retail Credit Firm commonly known as vulture funds.
The paper recommends that a set of suggested solutions previously outlined in the UK in 2023 should be considered as potential alternatives to leaving the customers of said funds in the position of carrying the burden of above market level interest rates.
There are two types of Retail Credit Firms:
“After the banking crisis, Irish banks held a high proportion of Non-Performing Loans on their balance sheets,” the paper says, pointing out that these are loans held by customers who are not meeting or are unlikely to meet their repayments schedule.
In 2014, almost one-third of loans in the Irish banking system were nonperforming – an astonishing number. The European Central Bank encouraged banks to remove these non-performing loans as they can impact funding costs and reduce profitability, Creighton says.
This led to Irish banks selling some of their outstanding mortgage accounts to the vulture funds.
The paper also provides a useful reminder that it was another EU agency – the European Banking Authority – that standardised the definition of what was a non-performing loan (NPL), causing the number of Irish loans included in this category to increase.
Before 2014, EU Member States used various definitions of an NPL. For example, the CBI [Central Bank] defined an NPL as “an impaired loan or a loan that was more than 90 days in arrears”.
In 2014, the European Banking Authority standardised the definition for all Member States, defining an NPL as:
- material exposures which are more than 90 days past-due, and/or
- the debtor is assessed as unlikely to pay its credit obligations in full without realisation of collateral, regardless of the existence of any past-due amount or of the number of days past due.
This standardised definition meant that a greater number of mortgages in Ireland were considered NPLs. This made banks more inclined to remove them from their balance sheets. Split mortgages fell into this new NPL category.
A split mortgage allows customers to reduce their mortgage repayments. Part of the mortgage loan is set aside without interest building up, and the customer makes repayments on the remainder of the loan.
Approximately 6,000 Irish customers with split mortgages who were meeting the terms of their agreement had their mortgage sold to a vulture fund due to the new definition, the paper notes.
HIGHER INTEREST RATES
Because vulture funds do not have to compete for customers in the way that traditional banks do, they are more likely to increase their rates in line with or above that of the European Central Bank, Creighton notes.
In addition the non-banks don’t have to worry about passing on interest rate increases to customer deposits and are more reliant on the wholesale markets.
The paper notes that the European Central Bank interest rates increases came into plat for the first time in 11 years in July 2022 – and that “the ECB’s ‘base rate’ (the rate that provides the bulk of liquidity to the banking system) increased from 0% in 2019, to a peak of 4.5% in 2023”.
“As a result, between June 2022 and June 2024 there was a big shift in interest rate payments across banks, non-banks and NBNLs in Ireland. By the end of this period fewer people were paying low interest rates and more were paying higher interest rates. In June 2022, no mortgage account with a bank or lending non-bank was paying in excess of 5% interest on their mortgage,” the report said.
The effect of the interest rate hike on those whose mortgage was being held by NBNLs – the vulture funds – was alarming.
“By contrast, 4% of NBNL mortgage accounts were paying above 5% interest. In June 2023, around 30% of NBNL accounts were paying above 5% interest which equated to nearly 23,500 accounts. By June 2024, this had increased to around 67% which was just over 51,000 NBNL accounts.”
“NBNLs account for large shares of the market at the higher interest rates. In June 2024, 29% of NBNL accounts were paying over 6% interest on their mortgage. By contrast, only 2% of accounts with banks and 5% of accounts with lending non-banks were paying over 6% interest on their mortgage.”
Creighton calculates that, given 1% of private home mortgages were paying over 8% interest – and that there are 700,000 of such mortgages in Ireland, roughly 7,000 of those customers are paying at least 8.5% interest on their mortgage – and all such unfortunate customers are with vulture funds.
“In June 2024, there were approximately 700,000 PDH [Private Dwelling House] mortgage accounts in the Irish market. More than 7,000 (1%) of these accounts, all held by NBNLs, were paying over 8% interest. As of June 2024, the ECB interest rate was 4.5%.”
“At this time around 3 out of 4 accounts held by NBNLs were paying above 4.5% interest.”
In addition, those customers have no option to try to switch to a provider that might offer them a better deal.
NBNL mortgage customers are generally paying higher interest rates than mortgage customers of banks and non-banks. Unfortunately, they tend to be unable to switch their mortgage to an alternative provider.
This is largely because traditional banks are unable, for regulatory and commercial reasons, to accept customers who have previously had their mortgage be deemed to be an NPL [non-performing loan] .
UK SOLUTION FOR SUCH LOANS
The paper says that similar issues exist in the UK because of the failure of both the Northern Rock and Bradford & Bingley banks in the 2008 crash.
“As a result, close to 740,000 PDH and buy-to-let mortgages were taken into government ownership. The government transferred these mortgages to a new organisation – UK Asset Resolution. Their role was to facilitate the management and disposal of the mortgages it held to credit servicing firms, similar to those in Ireland. This has led to a similar problem existing in the UK, with some mortgage customers paying much higher interest rates and being unable to switch,” it notes.
The problem of “trapped” mortgage customers paying higher rates to vulture funds led to a report by the London School of Economics in 2023 which suggested:
“While these UK proposals have not yet been actioned, they offer potential alternatives for customers stuck with uncompetitive interest rates on their mortgages in Ireland,” the Oireachtas Research paper notes.
“Whilst the ECB has begun to reduce interest rates lately, NBNL customers remain disproportionally affected by higher interest rates. Researchers/commentators have suggested that there should be a focus on ways to ease the burden of above market interest rates on these customers,” it concludes.
It’s a suggestion worth listening to – and may lead to an infinitely better outcome than 7,000 families or individuals losing their homes.
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*On 17/06/2025, Gript received the following from The Houses of the Oireachtas Parliamentary Research Service – with the revised article amending the higher rate of interest payable as in excess of 8% rather than between 8.5% and 10%. We have amended the article above accordingly.
The Houses of the Oireachtas Parliamentary Research Service would like to draw your attention to a revised version of our article ‘The impact of mortgage interest rate rises on non-bank customers’ (originally published on 06/05/2025). Some text and figures have been amended. Please disregard the previous version of this paper.
You should consult this revised version of the paper if you wish to refer to it in the future. Research Matters | The impact of mortgage interest rate rises on non-bank customers – Houses of the Oireachtas