Mortgage at 10 times salary

First Trust, the Northern Ireland arm of AIB, lent a customer 10 times their annual salary to purchase a home. The mortgage was approved by Helen Keating, the manager of First Trust's mortgage unit, after being referred by the customer's branch manager.

A spokeswoman for First Trust said it was not in a position to comment on the specific details of any mortgage application as it has a duty of confidentiality to its customers.

The customer in question was advanced 100 per cent of the purchase price of a house. After repayments and regular outgoings the customer was left with about £100 (€144) a month.

The normal rule of thumb for mortgage lending is a multiple of three to four times the salary or, more commonly, repayments of about 35 per cent of disposable income. In this customer's case, repayments came to more than 50 per cent of disposable income.

The customer was expecting an unspecified financial settlement as part of a divorce and had a business relationship with the bank. Both these points were taken into account when the mortgage was sanctioned last autumn.

First Trust is regulated by the UK's Financial Services Authority (FSA). A spokeswoman for the FSA said the authority did not lay down any guidelines about the amount that banks should lend relative to a person's income.

The bank is required to adhere to the principles of the FSA's code of conduct for mortgage business. This requires advisers "to take reasonable care to ensure the suitability of its advice", while a lender "must be able to show that before deciding to enter into a regulated mortgage contract with a customer, or making a further advance on a regulated mortgage contract, account was taken of the customer's ability to repay".

The lender is also required to keep an adequate record to demonstrate that it followed the code of conduct. The spokeswoman said it was not possible for the FSA to say whether or not First Trust had adhered to the code of conduct in this case.

"In relation to our mortgage lending policy, we assess the repayment capacity of each applicant and comply fully with the mortgage conduct of business rules in this regard," according to the bank.

AIB is regulated by the Irish Financial Services Regulatory Authority. A spokeswoman for the financial regulator said that while it had no direct role in supervising lending in Northern Ireland, AIB's activities there were still subject to prudential supervision by it.

Last week, the Central Bank, which is the parent of the financial regulator, expressed concern about the acceleration in house price inflation from 6-7 per cent last autumn to over 11 per cent at present.

The Central Bank noted that the acceleration coincided with the easing of credit conditions by lenders and increased efforts to market 100 per cent mortgages.

The bank has undertaken a new round of stress-testing of lenders to assess their vulnerability to economic shocks such as interest rate rises or an increase in mortgage defaults.

The regulator has also told banks to put aside additional funds to cover defaults on 100 per cent mortgages.