Irish Rental Property Market: Lack of financing creates opportunities for alternative & private lenders

Lisa O'Reilly

Lisa O'Reilly

In the Irish real estate market, particularly Buy-To-Let (BTL) mortgages for rental properties, a glaring issue persists: the scarcity of financing options. This shortage not only exacerbates the existing deficit of rental housing but also presents a significant obstacle to potential investors. However, within this challenge lies a silver lining—a growing opportunity for Alternative and Private Lenders.

Lending Void: Challenges in Financing Ireland’s Rental Market

A glance at the evolution of the Irish banking sector over the past decade paints a stark picture. In 2007, there were 11 banks in the Irish market; by 2024, only four remain. Yet, despite this downsizing, none of the surviving institutions exhibit a palpable appetite for lending in the rental property domain. Among the sparse options available, Bank of Ireland and Permanent TSB emerge as having any real appetite for Buy to Let lending. However, they typically favour turnkey properties that guarantee an immediate rental income stream. This limitation has resulted in a notable issue for existing rundown or inhabitable properties, where refurbishment is necessary, exacerbating the challenge of addressing the shortage of rental housing.

Consequently, small builders, who typically take on such projects and have accumulated cash reserves to afford the necessary work, are tasked with this undertaking. However, this approach often results in a slower turnaround for these properties. Given that these properties tend to be in city centre areas, where demand is at its highest, this further adds to the urgency for more alternative lenders to enter the Irish market.

Alternative & Private Lenders

This reluctance to engage with properties requiring any refurbishment or development has left a conspicuous void in the market. Consequently, Alternative Lenders, Bridging & Development Finance, Crowdfunding and Private Lending initiatives have multiplied, outnumbering the traditional banking stalwarts.

With a stark lack of rental property in the Irish market, it isn’t any wonder these Alternative Lenders show a marked interest in residential lending. They typically offer loans where significant refurbishment is required, but they do come with a caveat: they can be costly form of finance. Look out for arrangement fees, legal fees, exit fees and minimum interest periods, not to mention higher than average interest rates. It can be hard to make a property deal financially viable not to mention the surge in building costs over the past year or two, making it challenging to render a property deal financially viable.

This financial situation can present a significant challenge, particularly in smaller cities and towns where, despite high rental yields, property values might not align with the costs associated with this lending strategy. As a result, this lending model tends to find greater success in larger cities characterised by higher property values and significant potential for future appreciation.

Private Lenders

Where does this leave the future of individual private investors interested in restoring tired and rundown properties for the much-needed rental market? Well, this is where the intriguing gap in the market can transform into an opportunity for private lenders. Some individuals with funds idling in deposit accounts, earning as little as 0.1% interest, have identified this gap. Rather than becoming landlords themselves, they recognise the security in property and have opted to provide private lending to property investors. These investors use the funds to purchase, refurbish, and rent out properties and by cutting out the middleman and bypassing banks, private lenders can now earn these higher interest rates themselves.

This peer-to-peer lending arrangement has created the potential for a win-win strategy for all involved including the cities and towns as this trend has inevitably led to an increased availability of vacant properties. However, it’s important to note that this avenue should only be explored after seeking careful legal advice and a comprehensive due diligence process on both the borrower and the property in question as with any investment, there’s a possibility of losing all of one’s capital.

Lisa O’Reilly


April 2024