The amount of mortgages held by credit unions could triple under proposed changes being considered.
The Central Bank has published a review of the lending rules governing credit unions which are now being put out to public consultation until February.
If agreed the changes could see the amount credit unions lend in mortgages surge.
The regulator has suggested changes to the concentration limits for mortgage and business lending.
They would also remove tiering, giving all credit unions the same concentration limits, regardless of asset size.
Lending capacity would also be adjusted for all credit unions for home and business lending.
A new limit of 30% of total assets would be placed on house lending and 10% of total assets on business lending.
In future credit unions would not need to receive a comprehensive business plan and detailed financial projections for business loans of €25,000 or more, community loans or loans to other credit unions.
The Central Bank said the adjustments would lead to significant growth in the overall capacity for house and business lending, which would rise from €2.9bn to €8.6bn.
The Irish League of Credit Unions (ILCU), which represents 90% of the total active credit unions in the country, welcomed the proposed changes.
"I am delighted to see the proposed changes published by the Central Bank today. We championed these changes over the last 18 months," said David Malone, CEO of the Irish League of Credit Unions.
"These proposals represent a vital step forward, further empowering credit unions to support homebuyers and businesses.
"We now look forward to engaging with our members and contributing to the consultation process. It is imperative that these necessary changes are implemented at the earliest opportunity."
Kevin Johnson, CEO of the Credit Union Development Association (CUDA), said the changes would lead to a tripling of the current mortgage loan book to over €2bn.
"We are pleased that this modernising of the lending framework regulations for credit unions is in line with our request submitted to the Central Bank of Ireland in February 2024," he said.
"The Credit Union (Amendment) Act 2023 was designed to give credit unions greater flexibility, enabling them to engage in loan participation and syndication, which allows lending risks to be shared among credit unions."
"The combination of the legislation and these proposed regulatory changes mark a major step forward for the sector, empowering credit unions to enhance their offerings in both the mortgage and business lending markets."
The Central Bank said the proposed changes will ensure the regulatory framework remains appropriate for the sector.
They said, "considerable capacity remains available for credit unions to provide house and business lending within existing limits."
But the regulator said that having completed the review it was proposing to make a number of targeted changes to the regulations.
"The changes focus on concentration limits for house and business lending, and certain conditions attached to underwriting," it noted.
"The lending framework for credit unions has provided, and will continue to provide, important guardrails for the sector and for the protection of members' funds," said Deputy Governor of the Central Bank, Sharon Donnery.
"However, we are committed to ensuring the regulatory framework is responsive and appropriate in a financial system that is changing at pace.
"The proposed changes build upon the existing lending framework and follow our own comprehensive evidence-based review.
"Today’s publications are an important milestone for credit unions and their members, and provide further opportunity for the sector to develop and collaborate in a meaningful and sustainable manner.
"Our expectation is that the proposed changes to the lending framework, if implemented, would enable those credit unions that wish to undertake increased house and business lending activity in order to diversify loan books, improve loan to asset ratios and better deliver for their members."
