Far be it from Cantillon to pity a bank, but poor old AIB became – courtesy of The Irish Times – the poster boy for hyper-restrictive mortgage lending in the Covid-19 era.
A leaked document published last Monday showed the bank had introduced wide-ranging restrictions on lending, including a de facto ban on mortgage lending to those in receipt of government wage subsidies.
During the ensuing storm, a few other banks decided to slip out admissions of what everyone already knew but which no one had bothered mentioning upfront to customers: mortgage lending is in deep freeze for as long as a question mark hangs over the long-term sustainability of wages.
The banks largely gussied up their lending go-slow by arguing that of course they were lending; you just needed a letter from your employer saying your wage, currently being subsidised by the State up to 85 per cent, was tickety-boo in the long run. Or that your suddenly-munificent partner earned enough to cover the mortgage by themselves.
Consumer lending
Such explanations do not survive contact with the real world. The banks and the State need to start thinking seriously about what credit and consumer lending might look like during this period.
It is at least possible that some form of subsidy will remain for some time. If so, how will banks factor that into lending decisions? Will a substantial cohort be considered ineligible for mortgages? What will the structural effects be of turning off credit to these people?
The bifurcation of the economy between those who have, and those who don’t, may become more defined still. The politics of that matters; just ask a wannabe homeowner what determined their voting preference in February.
Household wealth
And what about top-up lending? Unsecured debt? People rely on a whole variety of credit instruments to make ongoing investments in their household and maintain their standard of living. These, in turn, support household wealth and the wider economy.
By Wednesday, AIB cracked under the pressure and announced a U-turn: it would accept applications from those on subsidies. But this may only be skin-deep, for AIB and for others. You may now be allowed apply but how many people will be advanced letters of offer, or be allowed to draw down funds, while subsidies remain in place?
The time to have hard conversations about these emerging problems is now.
