AIB demands 25pc deposit for one-bed apartments
STATE-owned lender AIB has reduced the amount of mortgage funding it will give for one-bed apartments, in a move that is likely to see the value of these properties fall further.
Up to now anyone buying a one-bed apartment could have received mortgage approval with a deposit of 8pc of the purchase price.
The bank now wants a deposit of at least 25pc of the total value of the property.
AIB is also telling those taking out a mortgage and getting financial support from their parents to have their parents named on the mortgage documents as co-borrowers.
Previously the bank used to accept a guarantee from parents in cases where potential buyers could not get mortgage approval without parental support.
Karl Deeter, operations manager of Irish Mortgage Brokers, said the change was probably because banks were finding that they couldn't call in guarantees given by parents in the past.
During the height of the property boom -- between 2004 and 2008 -- thousands of first-time buyers got written guarantees from their parents in order to qualify for mortgages.
Mr Deeter added: "Parents being asked to go co-borrower could mean that previous guarantees are not holding up in arrears cases."
He warned that any parents who end up as co-borrowers would be jointly and severely liable for the mortgage.
Asked about the changes, AIB would only say the changes reflected market practice.
Apartment prices have fallen much more steeply than houses, with prices down 60pc in Dublin since the peak of the market in 2007.
Last year EBS, now part of AIB, said it was no longer providing mortgages for apartments in towns outside the cities of Dublin, Cork, Limerick and Galway and the larger commuter towns.
AIB has also tightened its lending criteria for buy-to-lets and for holiday homes.
The move on apartment lending may have implications for the National Asset Management Agency (NAMA).
NAMA is planning to encourage the purchase of thousands of apartments and homes with a special scheme to protect against negative equity.
It is hoping to eventually sell up to 5,000 properties with the scheme where it would waive up to 20pc of the purchase price of a home on its books if property prices fall over the next five years.
Meanwhile, a survey of independent brokers has found that the majority of people seeking mortgages are finding it harder to get approval, given the ever-tightening squeeze on bank lending.
The study by the Professional Insurance Brokers' Association (PIBA) found most brokers reporting that between 60pc and 80pc of applications they submit to lenders are declined. This is a rise on the previous quarter.
Rachel Doyle, director of PIBA mortgage services said: "The bank lending situation continues to deteriorate.
"The Irish Banking Federation recently admitted that mortgage lending is down 94pc since the peak in 2005.
"Lenders are placing every impediment in the way of those seeking mortgages," she added.