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AIB now wants 25pc deposits on mortgages for one-bed flats

BAILED-OUT AIB is demanding deposits of over 25pc from those looking to buy one-bedroom apartments, it emerged today.

The State-owned lender has reduced the level of mortgage funding it will provide for one-bed properties -- in a move that will badly hit some first-time buyers.

While the bank previously approved mortgages based on just 8pc deposits on the total value of properties, it has emerged that it now wants at least 25pc.

The decision, while making it more difficult for those seeking one-bed apartments, is also expected to spark a fall in property prices.

The move will also prove a headache for those trying to sell one-bedroom apartments -- which experts say have become the hardest properties to sell.

The bank has also imposed stricter rules on guarantors.

Young buyers who receive financial assistance from their parents are now being told by the bank that they must name their parents on the relevant mortgage documents as co-borrowers.

Previously, the bank accepted a guarantee from parents if their children were unable to get mortgage approval on their own. Thousands of first-time buyers used guarantees from their parents during the boom-time in order to qualify for a mortgage.

Karl Deeter, operations manager of Irish Mortgage Brokers, said that the change may stem from the bank becoming more wary of parental guarantees.

"Parents being asked to go co-borrower could mean that previous guarantees are not holding up in arrears cases," he added.

And Mr Deeter warned that any parents who end up as co-borrowers would be jointly and severely liable for the mortgage if it entered arrears.

Apartment prices have fallen much more steeply than house prices -- with prices of those in the capital down as much as 60pc since 2007.

EBS last year confirmed that it would no longer provide mortgages for one-bedroom apartments in more rural areas.

The Professional Insurance Brokers' Association found that most brokers are reporting that between 60-80pc of the applications they submit to lenders are refused.

"The Irish Banking Federation recently admitted that mortgage lending is down 94pc since the peak in 2005," according to the association's Rachel Doyle.