New research from the Central Bank shows that non-bank lenders now account for 13% of the new mortgage lending market with the sector growing in importance in recent years.
In a new Financial Stability Note, the Central Bank noted that non-banks can play an important role in enhancing competition on interest rates for consumers.
But they may also increase rates more quickly than banks due to their different funding structure, it added.
Today's research points out that non-bank lending may differ from bank lending in ways that benefit the real economy and can provide credit to borrowers less likely to be served by traditional banks, while it can also stimulate competition between lenders by lowering borrowing costs and increasing credit supply.
However, the Central Bank cautioned about some potential risks from a financial stability perspective of non-bank lending.
In Ireland, non-bank lenders engaged in new mortgage lending are regulated as Retail Credit Firms (RCFs) by the Central Bank.
RCFs and retail banks are both subject to financial conduct and consumer protection requirements, and RCF lending is also regulated under the Central Bank's macroprudential mortgage measures.
But they are not subject to the same regulatory capital requirements as banks.
The Central Bank said non-bank lenders are likely to increase cyclical pressures during times of economic expansion, but may exacerbate declines in credit supply during downturns.
Today's research also finds that non-bank lenders now hold 14% of total mortgages in Ireland, including 52% of mortgages in arrears, mainly due to the sale by Irish banks of non-performing loans to non-bank lenders over the last decade.
Non-banks' share of new mortgage lending has grown from 3% in 2007 to 13% in 2021, but despite this rapid recent growth, the Central Bank said that new lending by banks continues to dominate the mortgage market.
Non-banks account for almost 30% of new lending in the buy-to-let and refinance markets, but only 10% of the larger first-time buyer and second-time and subsequent buyer segments - which combined - account for 85% of new mortgages since 2015.
The Central Bank said, however, this segmentation may evolve following the departure of Ulster Bank and KBC Bank Ireland from the Irish market over the coming months.