For most, applying for a mortgage will be a straightforward business that involves supplying documentation, getting loan approval and finding a dream home.
But for others the business will be complicated, particularly where applicants have a poor credit history. It makes sense that mortgage lenders will not see much appeal in advancing cash to someone who has left other creditors in the lurch. But not all lenders take this view, with more operators prepared to take on customers with poor credit histories, at least at a price.
Sarah Wellband of mortgage broker Rea says that while her company does not tend to deal with many clients with credit problems, a number of brokers now advertise products for this market. These loans are offered by companies including GEC Woodchester, An Post and Start.
Ms Wellband explains that broadly, loans from these companies will differ from other mortgages in the interest rate that applies and the maximum loan-to-value available. For example, with Start there is a matrix of rates starting with 4.95 per cent (higher than mainstream market rates) for somebody borrowing less than half of the property value who has fewer than two months of loan arrears. The other end of the spectrum is a rate of 7.5 per cent and a maximum loan-to-value of 75 per cent for someone who has more than 10 months of mortgage arrears, more than a year of arrears in other areas and up to €10,000 in judgements against them.
"This is 'last chance saloon' time for these borrowers as they are most probably about to lose their home," says Ms Wellband.
It may be tempting for people with credit problems to neglect to mention them when applying for a homeloan. This would be a silly strategy, since all loan providers except credit unions will rate the performance of mortgages and loans with the Irish Credit Bureau.
"All lenders check their potential borrowers' credit rating as an essential part of the mortgage application by contacting the ICB. The application form requires the clients signatures as authority to carry out this check," says Ms Wellband.
She explains that loans still outstanding are profiled every month, while historical loans will be ranked under one of four numbered headings. Number one means all payments were made on schedule while, at the other extreme, number four means legal action had to be taken to recover the funds. Credit cards revoked or cancelled by MBNA will also show up, with rankings kept on the system for six years.
In general, Ms Wellband adds, the best approach to getting a mortgage when you have an "impaired" credit history will depend on the reason for the problem. If it was an episode caused by uncontrollable circumstances such as death or redundancy, there might not be too much difficulty in winning a new lender's approval. Likewise, credit issues linked to a failed business where the applicant is now PAYE and tax-compliant might be easy to solve.
"If however the problems were due to a case of 'won't pay' rather than 'can't pay' or a dispute with the previous lender then most new lenders will decline on the basis that the client may have issues with them in the future. If there is more than one (short) period of bad credit they will probably also be declined as habitual defaulters," Ms Wellband advises.
