AIB has softened its approach to mortgage applications from customers on the pandemic unemployment payment and the temporary wage subsidy.
The banking group found itself at the centre of a storm this week when it was revealed it was halting all applications for mortgages at AIB, Haven and EBS from those on State supports.
An internal memo had exposed how the banking group was "pausing" lending to customers on the pandemic unemployment payment and the temporary wage subsidy.
Analysts said the changes in lending criteria amounted to a de facto ban on mortgage lending to those receiving State wage subsidies.
But the banking group has now said from next week it will begin accepting new mortgage applications from customers who are on the State's Covid-19 supports.
This is a major U-turn.
However, it warned it may still refuse to allow a mortgage to be drawn down if it concludes that customers on State supports are unable to meet the repayments.
In a statement the bank said: "However, in line with normal procedures, the final assessment of the customer's ability to meet repayments is always made shortly before drawdown." AIB said it was obliged to ensure that all loans were sustainable and affordable.
"In assessing an application for a mortgage, the lender must adhere to all legal and regulatory requirements to ensure the long-term sustainability of the loan."
It said it takes an average of six to nine months to complete, with four phases - application, approval in principle, letter of offer, and drawdown.
AIB said customers who had already received a letter of offer were dealt with on a case-by-case basis.
Brokers said this week that all lenders had effectively stopped issuing mortgages to customers on the pandemic unemployment payment and the temporary wage subsidy.
Ulster Bank and Permanent TSB have stopped making loan offers to those on State subsidies, according to broker Karl Deeter. He said Bank of Ireland, KBC and Finance Ireland were processing loan offers. But these three would not allow people to draw down a loan while they were on State supports.
This meant no lender was 'lending' to people receiving State supports, he said.