Two more lenders tighten mortgage rules

THE CREDIT crunch continued to bite yesterday as two more Irish lenders introduced changes for mortgage brokers in response to rising funding costs in the volatile financial markets.

The State's largest bank, AIB, is halving the commission it pays to mortgage brokers, while Haven, a subsidiary of EBS Building Society which sells mortgages through brokers, is cutting its maximum home loan to 85 per cent of the value of the property from 92 per cent.

Financial institutions are adjusting lending procedures, raising rates and tightening borrowing rules on an almost daily basis as they pass on to customers the higher cost of funding, which has spiralled due to the credit crisis.

Brokers, who sell one in every two mortgages, are being squeezed as lenders try to reduce the cost of selling home loans through intermediaries to cope with escalating money costs.

The credit crisis has driven up the cost of euro inter-bank borrowing for three-month money to its highest level since December 18th as the banks remain reluctant to lend to each other amid concerns that sub-prime losses will rise.

The three-month Euribor inter-bank rate climbed for a ninth day, to 4.83 per cent.

It has risen 0.46 per cent in the past two months, reducing the profit margins lenders earn on mortgages.

Haven, which is introducing the changes from Monday, is ending 100 per cent mortgages for certain professionals and civil servants, capping home loans to these borrowers at 92 per cent of a property's value.

It is also withdrawing free legal fees to customers who switch their mortgages to EBS.

Haven is capping its residential investment mortgages at 80 per cent of the property's value. All loan applications approved by Haven are valid until June 30th.

Tony Moroney, managing director of Haven, said it was running 40-50 per cent ahead of target since its launch in mid-December and that it was introducing the changes as it wanted to control the quality of loans it was providing and maintain its service levels. Haven has built up a 7 per cent share of the broker market.

AIB said from Monday it was halving broker commissions to 0.5 per cent of the mortgage drawn by the borrower. The bank is also extending the period during which it can claw back commissions from two to three years if the mortgage is redeemed.

The bank, which is less active in the broker market than other lenders, said the changes were due to "the continuing high cost of funds in the financial markets and the resulting margin erosion in AIB's mortgage business".

A spokeswoman for Bank of Ireland said that its subsidiary, ICS Building Society, which sells the bank's home loans through brokers, was in talks with intermediaries about reducing commissions.