The coronavirus pandemic has had a profound effect on many industries in Ireland. One of the industries hit the hardest was the mortgage lending industry. Specifically, the Allied Irish Banks, AIB, has had to alter their lending rules to deal with the uncertainty attributed to Covid-19. In February 2021, AIB announced a major modification concerning their lending rules. This change was the reduction of time allowed for approval in principle, AIP, from twelve months to six months. I will explore what AIP is, the reasons why a change was made to its length, and how it will affect those applying for mortgages with AIB.
The first step in getting a mortgage is getting approval in principle. AIP is an agreement from a bank stating that they will grant a home loan in principle, provided the conditions of the loan are met by the applicant. To get this approval, the bank must believe that the applicant is able to afford the loan and the monthly payments that come with it. To gather information on the credibility of applicants, banks will look at both credit and income records. Based on the applicant’s standings in both categories, the bank will give them an amount that they have been approved for. This will tell the applicant what price range they can look for in their home search. The bank will specify the length of time allowed for this approval, and this allows applicants to make offers on desired properties during that period. Once an offer is accepted, the applicant can complete all other required tasks and purchase their home.
Prior to the reduction of time allowed for approval in principle by AIB, they were an anomaly in their industry allowing twelve months’ time instead of the industry-standard six months. While AIB has not come out directly and stated a reason for this modification, it is believed to have a lot to do with the uncertainty of financial situations due to Covid-19. No one knows when the pandemic will end, so AIB has had to tighten their grip on the things they can control. Less time for AIP means less time for financial situations to change for applicants, increasing certainty for AIB when approving in principle.
This modification has cut the time in half to look for homes after securing their AIP. The longer AIP period is probably something that attracted applicants to business with AIB. This could push applicants to apply with other lenders, but since the length is the same as almost all other banks, maybe not as much. When deciding where to apply consumers will not take AIP length into consideration as much. It is also important to state that this rule change came into effect on January 15, 2021. All AIB approval in principle lengths approved before this date will still be twelve months. This situation confirms how important it is to keep eyes in the news when applying for homes. If consumers do not, they could run into problems with conditions when applying for a mortgage.
Written by Kourtney Manley, Business Analyst at OnlineApplication