The father of a young man who found the rug pretty much pulled from underneath him by AIB as he came close to buying his first home has been in touch to express his fury at the loan-to-value rules as they can apply to people in the market for one specific housing unit.
John’s son has a full-time job with an annual salary of just over €100,000, which is excellent by any standards. Unsurprisingly, then, he was approved by the AIB-owned Haven Mortgages for a 90 per cent mortgage and was given the green light to buy a two-bedroom apartment in the Dublin area for €400,000.
Just hours before the contracts were to be exchanged, however, the sale collapsed and he found himself back to square one – or very close to it.
But, as John tells it, that wasn’t the worst of it.
“Having been fully approved for a 90 per cent mortgage at €400,000, he recently agreed a sale on a one-bedroom apartment costing €330,000. However, he has now been informed by Haven that he only qualifies for an 80 per cent mortgage because the property is one-bedroom only.”
John says this “came as a bolt out of the blue” and points out that all of a sudden his son was supposed to find equity totalling €66,000, plus another €7,000 to cover fees and costs.
Not many of us would be able to find more than 30 grand under the cushions on the couch and the sudden shortfall puts John’s son “in the invidious position of having to restart the entire mortgage application process again” with another lender, aware that there is “no guarantee [they] will provide a 90 per cent mortgage”.
John wonders how young people are expected to come up with such a large amount of equity to purchase a very basic “starter property”, even when they are “on an excellent salary working for one of the premier companies in the country”.
He says it is hardly surprising that “young people are leaving the country in droves” and argues that it is “nonsense to require such a high equity portion for a second-hand one-bedroom apartment when there is such a shortage of housing in the State, with prices rising some 10 per cent annually, especially in the Dublin area, and when the Government continually falls short on its promise of building new houses/ apartments”.
He adds that while he might be able to understand “a cautious stance by the likes of AIB in certain rural areas of the country, where surplus apartments were built in the heady days of pre-2008, I find it absolutely indefensible that a 90 per cent mortgage cannot be obtained in the major urban centres, especially Dublin”.
He also notes that there have been growing calls for more one-bedroom (as well as two-bedroom) apartments to be built despite the obstacles that are placed in the way of those who might be eager to buy them.
“It goes without saying that a 20 per cent equity investment is way out of range of most people even with the assistance of the Bank of Mum and Dad. I feel very passionate about this for the sake of not only my son but young people generally. There is obviously no joined-up thinking here and I have no doubt that if challenged the banks will conveniently blame the Central Bank and the Central Bank the politicians so that we end up in a merry-go-round with no one taking accountability and responsibility.”
We understand John’s anger but restrictions on how much people can borrow to buy one-bedroom apartments are not new and are a legacy of the property crash more than 15 years ago. While people buying one-bedroom homes were not the cause of the crash – the banks were to blame for that, let us not forget – many people did buy one-beds, which were hit very hard by the crash. They were mired in negative equity and left vacant for long periods or used to accommodate families who had long since outgrown them. Such units also offered nothing by way of flexibility to people strapped for cash when it came to renting out the spare room.
Going back to 2010 – when as many as 80 per cent of mortgage applications were being refused – Bank of Ireland introduced much tighter rules for borrowers looking to finance one-bedroom apartments and reduced the maximum loan-to-value (LTV) ratio for one-bed apartments in Dublin, Limerick, Galway and Cork from 92 per cent to 80 per cent with a deposit of 30 per cent required elsewhere.
A Bank of Ireland spokeswoman said at the time the changes made for one-bed apartment mortgages reflected the risk involved. “We see it as a prudent move rather than a drastic one.”
Other lenders followed suit to some degree.
But the world moves on and things do change, as the then tánaiste and leader of the Fine Gael party Leo Varadkar highlighted in the Dáil when he was questioned in 2021 by Social Democrats leader Holly Cairns on the last government’s – how shall we put this? – somewhat questionable success rate when it came to housing.
She had said Ireland was “no country for young people” – and there is no arguing with that – and blamed the government for the near-impossible challenges faced by people in their 20s and 30s to buy a home.
In response, Varadkar said that “one of our biggest deficiencies, in housing supply in Ireland, is we’re a country of three-bed homes, by and large, and we don’t have enough one-bed homes.”
He added that it was “disappointing to see so many people, including members of [the Soc Dems] objecting to new homes being built. Particularly in Drumcondra, for example, objecting to new homes being built because they’re one-bed apartments.”
He was referring to plans to build about 1,600 apartments on the grounds of the Holy Cross seminary in Drumcondra, Dublin, including a fair few one-beds.
“One of the changes that has happened in our society is that people tend to form their households later in life, tend to get married later, tend to be single for longer. And objecting, as the Social Democrats often do, to housing on the basis that they are one-bedroom apartments, really misunderstands the fact there are so many single people now in society,” he concluded.
Fast forward four years and there certainly does not appear to be an over-supply of one-bedroom homes across the country. When we looked on the Irish Times-owned property website myhome.ie last week, there were only about 300 such homes on the market, ranging in price from less than €100,000 in the midlands to close to €800,000 in some of the leafier parts of Dublin 4.
In response to our query, AIB said it “considers a number of factors when assessing mortgage applications, including market conditions and resale values. Our standard policy for lending against one-bed properties is to a maximum 80 per cent LTV; however, exceptions can be considered on a case-by-case basis.”
We contacted mortgage broker Michael Dowling to see if he could offer anything by way of wisdom to John and his son.
“I fully understand the predicament faced by your reader,” he said. “There are lenders whose credit policy restricts the percentage they will lend on one-bed apartments; for some it is a max of 75 per cent of the value or purchase price.
“Thankfully, not all lenders have such a policy and there are many who will lend up to 90 per cent of the purchase price or value.”
He pointed out that AIB owns EBS and Haven but said there are “at least five other lenders who will lend up to 90 per cent. The only caveat is the location of the apartment. Noting the purchase price is €330,000, I would suggest it is located in Dublin or a main population centre, so 90 per cent will be no problem.”
Dowling was not wrong about the location – it was in the Malahide area of Dublin.
“The other good news for your reader is that AIB and its subsidiaries have some of the highest interest rates in the market for ‘non-green’ properties, ie those with a Ber cert of C1-G,” Dowling continued.
“AIB offers the following rates for 90 per cent loan-to-value: variable rate 4.15 per cent; three years fixed 4.8 per cent; and five years fixed at 5 per cent.”
He said the “market can offer fixed rates ranging from 3.25 per cent and match AIB’s variable rate. I would suggest your reader contact a regulated mortgage broker to get market-based advice.”
