AIB has introduced wide-ranging restrictions on mortgage lending in light of the Covid-19 pandemic, internal documents seen by The Irish Times reveal.
They include a de-facto ban on mortgage lending to those in receipt of State wage subsidies and extra scrutiny on applications from people working in “high risk” sectors of the economy.
The changes, which will extend to its specialist mortgage lenders EBS and Haven, were described as “frightening” by one mortgage market source, who added it would have “huge ramifications”.
The changes to policy are outlined in a credit policy update distributed to EBS lending managers on June 17th.
It outlines that “currently the bank’s position on customers who are in receipt of any element of the Employer Temporary Wage Subsidy Scheme [ETWS]or the Pandemic Unemployment benefit is to pause these applications until such time as the impacted customer is no longer in receipt of the payment”. The circular notes that there are “strictly no exceptions to this position”.
Self-employed applicants
As of last Monday, more than 400,000 workers were having their wages supported through the scheme, while over 465,000 people were receiving the pandemic unemployment payment (PUP).
In the case of joint applications where one person’s income is affected by being in receipt of the payments, that person’s income is discounted in full when applying the Central Bank’s loan-to-income rules. Bank staff managing applications from “Covid-impacted applicants” have been told to “ensure no ETWS evident, also obtain up to date payslips to ensure no ETWS evident”.
The document also indicates that some sectors of the economy, particularly exposed to Covid-19, will come under extra scrutiny when assessing applications, with lending managers told to “pay particular attention to the sector that applicants work in when assessing the sustainability of their income”.
Criteria for evaluating self-employed applicants provide a hint of how the bank will assess different sectors of the economy. For these applicants, managers are told to assess both the immediate and long-term impact of Covid “whilst [a business] may be open, has their business model changed due to social distancing/reduced footfall/have contracts been lost due to customers no longer requiring their services?”
Lenders are advised to “look at the sector . . . . Sectors with a longer term impact will need enhanced analysis addressing long-term sustainability”.
A spokesman for AIB said “at a time of unprecedented economic instability triggered by the Covid-19 pandemic, AIB considers it prudent to review its mortgage lending policies to ensure our mortgage loans continue to be suitable and affordable for our customers.”
The bank said it is “imperative the mistakes of the past are not repeated”, and that customers “are not exposed to unnecessary risk and that their loans are sustainable”. The spokesman said the group will keep its mortgage procedures under review as the Covid-19 situation evolves.
Those coming off the pandemic unemployment payment (PUP) will be required to supply a month’s worth of payslips, as well as current account statements showing the social welfare payment has stopped.
Bonus payments will be “closely scrutinised”, the document says, adding “in practice this will mean that bonus payments in the main will be excluded”, while overtime, commission and bonuses will “need to be clearly demonstrable in a go forward scenario”.
‘Limitied risk appetite’
The document also outlines a series of policy changes for Buy to Let (BTL) mortgages, as well as equity release and top-up loans. Amid likely rent declines in the months ahead, income from a BTL property being financed is to be excluded in a range of scenarios, including those applying for their first such loan.
While top-ups for home improvements remain unchanged, the document states that “equity releases for home improvements are out of scope”. There are a range of changes to how the bank will implement exceptions to the central bank’s macro-prudential rules, the strict lending ratios introduced to arrest credit-driven house price growth.
For second time and subsequent buyers, exemptions to the loan-to-value and loan-to-income ratios are closed. Loans greater than €500,000 are also closed for exemptions to the lending rules. Applications which are moving from the approval in principal stage to a letter of offer, with an exception in place, will be honoured, the bank says.
Exceptions to policy, aside from minor documentation exceptions “for which there is limited risk appetite”, are closed - this applies to new lending and those who have received approval in principle, who will be re-assessed and may find themselves declined. Negative equity trade up/trade down mortgages are also closed, which will apply to new lending, as well as new and existing applications with approval in principle.
