AIB rule change adds to mortgage problems
BAILED-out bank Allied Irish Banks (AIB) has moved to make it more difficult for homeowners struggling to pay their mortgages to meet their repayments.
Up to now the country's biggest bank allowed homeowners to pay interest only on their mortgage for two years if they lost a job or were unable to meet the repayments for some other reason.
But now AIB will only allow its residential customers to opt for interest-only payments for a maximum of a year, the Irish Independent has learned.
Mortgage experts last night said paying the interest only on a mortgage, and not the capital, was a way of reducing the monthly repayments to get a homeowner out of a financial fix.
The bank defended the move yesterday as a prudent one, given the sharp deterioration in the economy.
The State has provided €3.5bn to recapitalise AIB, and is also guaranteeing its deposits.
Rules
AIB has also changed the rules which allowed parents to help young buyers get on the housing ladder by helping to guarantee their mortgage.
AIB had allowed parents to provide a "letter of guarantee" for up to €200,000.
Now the bank will only allow parents to guarantee €100,000 of a loan for a first-time buyer.
But if the parents have assets of less than €300,000, excluding the value of their home, they can only guarantee €25,000 of their child's mortgage. The bank has also moved to restrict lending to those taking out a loan to buy a second home and to buy a home as an investment.
AIB will only provide funding for 75pc of the value of a holiday home, down from 85pc previously.
It has also reduced the percentage of the value of a property it will provide to those buying an investment property to 75pc.
New investors in residential property can no longer pay the interest only on the mortgages for five years and will now have to revert to paying the interest and the capital amount after two years.
Restriction
Financial adviser Karl Deeter of Irish Mortgage Brokers said the restriction on lending to property investors comes after changes in the tax regime for these people in the last Budget.
He said the changes imposed by AIB would put additional pressure on investors in residential property.
A spokesman for AIB defended the changes, which he said reflected the more difficult conditions in the housing market.
"We continue to support the mortgage market and continue to support mortgage applications," he said.
AIB had doubled its market share among first-time buyers in the first half of the year.
It had issued 1,700 mortgages to first-time buyers in the year to June, the spokesman added.
- Charlie Weston Personal Finance Editor
