AIB chief: time to relax mortgage rules

AIB chief executive officer Colin Hunt believes the lending rules have served their purpose but should now be adjusted to reflect the market.

In his first interview since taking over the top job at AIB, Mr Hunt told the Sunday Independent that house price inflation was now zero and, according to some measures, falling in Dublin.

He added that this is hitting confidence.

The rules were never intended to be permanent, he said.

Mr Hunt’s remarks mark a significant shift in the bank’s position on the lending regulations and echo comments by Taoiseach Leo Varadkar in July urging the Central Bank bank to loosen lending restrictions.

“We’ve been big supporters. We believe they were necessary, we believe they have achieved their objectives but they shouldn’t be set in stone,” Mr Hunt said.

“They should adjust to and reflect a changed pricing environment and a changed economic environment.”

Mr Hunt, who took over as CEO of AIB in March, said normal demand for housing in Ireland would require the building of 35,000-40,000 new homes a year. Around 22,000 will be built this year.

“In normal circumstances, in an uncontrolled environment you would have rampant house price inflation given that imbalance,” he said.

“We welcomed the macro-prudential rules. I am a big supporter of them. They have done exactly what they were intended to do, which was to ensure you don’t have runaway house price inflation given the imbalance that’s there.

“But given the fact that they have done exactly what they were supposed to do, which was to put a lid — and a very, very effective lid, on house price inflation — now it is effectively zero and some would say Dublin is falling, which has negative confidence impact by the way. And given the fact that we are coming potentially into a changed economic landscape it would be worth revising them at this point, I think.”

He said any changes should be “gradual and nuanced rather than wholesale”.

Mr Hunt said that such an approach would give homebuyers “a little bit more flexibility”.

When asked if loosening the rules could lead to excessive borrowing or lending, Mr Hunt said he believed lessons had been learned from the crash.

He said borrowing and lending would “inevitably be at far more conservative levels in the future than it has been in the past. I am not saying for one minute that you would do away with the rules, I think they are very, very useful and an important initiative and one we support. But certainly, given the changes that have happened, it would be worth having a look and seeing if you can have some change”.

In relation to mortgage rates in Ireland, which are considered high by European standards, he said that they were unlikely to go lower.

“If you look at where Central Bank rates are, it is nigh on impossible to see them going lower than they currently are. We’ve seen very significant reductions in mortgage interest rates in Ireland the past four or five years.

“Mortgage interest rates are very, very low at the moment. We obviously keep the market under continuous review.” He added that he did not see them going up either.

Mr Hunt also gave a frank assessment of the challenges ahead for Ireland. While Brexit was a concern, there were other global threats such as international trade wars and weakening sentiment.

“We are closer to the next recession than we are to the last,” he said. “Predicting the timing of it is nigh on impossible. But there is an increasing number of straws in the wind suggesting that we are near or past the peak of the current cycle. This is the time to prepare yourself.”

Individuals and businesses should “make sure you are not over-borrowed. Make sure you are in a sustainable financial position. Make sure you prepare yourself for the challenges that might lie ahead. That’s certainly what we are doing, we are very much focused on preparing ourselves for the challenges that might lie ahead.”

Mr Hunt also said that the bank was preparing its next three-year plan, and he envisaged staff numbers falling from around 10,000 to fewer than 9,000 by 2022. This is because there will be less need for the numbers of people dealing with the bad debt leftover from the recession.