Saturday 21 September 2019

Bank accused of restricting mortgages with tough rules

Charlie Weston Personal Finance Editor

THE country's biggest bank was last night accused of restricting mortgages to only the highest earners -- less than a week after it received €3.5bn in taxpayers' money.

AIB is publicly claiming that new borrowers can get a rate of around 2.25pc.

But -- along with Permanent TSB and other lenders -- it will now only approve home loans for borrowers who can cope with repayments if interest rates more than double to 5pc.

Permanent TSB said it will only approve mortgages for people who can make repayments if rates reach 6.15pc.

Mortgage brokers said this "stress testing" of potential borrowers by AIB and Permanent TSB was a way of cherry picking the market, and meant that only high earners would now qualify for a mortgage.

Stress testing means checking the income of a mortgage applicant to see if they can still meet repayments if interest rates are much higher.

The Permanent TSB changes mean it will only approve mortgages for first-time buyers and those switching home loans if they can show that they will still be able to meet monthly repayments on a €300,000 mortgage if repayments surge from €1,300 a month to €1,800.

The revelation comes just a week after the State put €3.5bn into AIB to recapitalise the stricken bank, and months after Permanent TSB was included in the €440bn State guarantee.


The new rules are far more restrictive than the "stress testing" level required by the Financial Regulator.

Mortgage experts said that the changes would mean that someone on an annual income of €30,000 would now qualify for a mortgage of €155,000, some €50,000 less than they could have been approved for last week -- before the new restrictions were introduced.

Consumers' Association boss Dermott Jewell accused the banks of misleading people by advertising one borrowing rate but only approving loans for much higher rates.

He said banks were being hypocritical when they claim that they are providing credit.

Operations director of Irish Mortgage Brokers Karl Deeter said the changes meant that only people on very high incomes would qualify for mortgages under the new rules.

"AIB and Permanent TSB are using this stress testing as a way to restrict credit. They have decided that they are only going to lend to the cream of the crop. They are saying that you will need to earn a shed load of money to qualify."

Frank Conway of Irish Mortgage Corporation said: "All of the lenders are stress testing and some are doing it more visibly than others. AIB is very visible on how it stress tests whereas other lenders build it into their mortgage calculators."

Mr Conway added that the fact that people would now qualify for smaller mortgages meant that house prices would be forced to fall further.

Domestic banks now have more than 80pc of the mortgage market as foreign-owned lenders have retreated.

AIB said yesterday it now has 38pc of the market. A spokesman for the bank said: "This is about prudence because we don't know how long interest rates will remain at these low levels."

The spokesman denied that the bank was implementing changes that meant only wealthy people would qualify for home loans, and insisted that borrowers were qualifying for larger mortgages now than they did when interest rates were higher last year.

A spokesman for Permanent TSB confirmed the changes and said potential borrowers were being tested to see if they could manage if interest rates climb.

"We are being prudent," the spokesman said.

He conceded that the bank does not expect rates to rise in the short term.

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