AIB tightens mortgage lending rules

Bank cuts ‘approval in principle’ duration in which to find home from 12 to six months

AIB has slashed the time it allows potential home buyers to look for a new home from 12 to six months, as it tightens up its "approval in principle" regime.

As of January 15th, the bank, which has about a 33 per cent share of the mortgage market, will no longer allow those who have received mortgage approval 12 months to draw down their loan.

Instead, they will get six months, in line with the rest of the mortgage market, to activate their “approval in principle”. The change will only apply to new applicants, and a spokesman for the bank said if you had approval prior to January 15th, a 12-month period will continue to apply.

AIB has been an outlier in offering such a generous timescale in which to draw down a mortgage, as the industry standard has long been six months, a time frame offered by Bank of Ireland, Ulster Bank and KBC, for example. With an approval in principle, a home buyer can look and bid on a home, but must still await final approval before they can draw down their mortgage.

Financial circumstances

This may mean once again providing recent pay slips, and information on outstanding debts, to ensure the borrower’s financial circumstances haven’t changed since approval was first granted.

The bank declined to say specifically why it was making this move, and just noted it keeps its “lending policies under constant review in response to the wider economic environment”.

Uncertainty caused by the Covid-19 pandemic could be a reason why the bank is tightening the reins on mortgage applicants. Last year, the bank stopped lending to those who were put on pandemic wage subsidies as a result of Covid-19, and it’s understood that it’s still difficult to get mortgage approval where an employer is still in receipt of such a subsidy.

Exemptions

Another factor in the bank's decision might be how it accounts for exemptions to the Central Bank of Ireland's mortgage lending rules. Banks are allowed lend more than 3.5 times income for up to 20 per cent of its book to first-time buyers, and up to 10 per cent for second or subsequent buyers. Similarly, 5 per cent of mortgages to first-time buyers can have a deposit of less than 10 per cent, and 20 per cent of second time buyers can buy with a deposit of less than 20 per cent.

The exemptions are given on a rolling annual basis, which means that it can be difficult to ascertain when an exemption may actually be drawn down, particularly if the buyer has a long approval-in-principle period. This means banks can hold back on such lending terms, rather than run the risk of contravening the Central Bank rules.