More and more Irish householders are falling foul of teh Big Brother tactics used by the banks to keep track of how well we manage the €85m debt mountain built up through mortgages, car loans, personal borrowings and credit cards.
Miss a few payments and your bank will tip off all other lenders by putting a black mark on your credit record at the Irish Credit Bureau. Miss three in a row, even through a genuine financial mix-up, and you risk being blacklisted for up to five years. That means that mainstream lenders, including most banks, building societies and hire purchase companies, won't want to know you.
After years in the wilderness, people with blemished credit histories are now being given a second chance by a growing band of specialist or non-conforming lenders. They pick their customers carefully, lending only to people who can offer their homes as security and charging significantly higher rates of interest than the mainstream mortgage providers.
"It's the class Catch 22 situation. Yes, specialist mortgages are expensive but they're a lot less expensive than some of the alternatives," says Michael Dowling, president of the Independent Mortgage Advisers' Federation. "They give you the chance to repair your credit history and, as soon as this happens, you should look to refinance at a normal home loan rate. They've given hope to people who didn't have hope in the past."
Ronan Mackay of NC Mortgage Brokers says it is surprisingly easy to be blacklisted. "One blip on your credit history and mainstream lenders will turn you down," he says. "If you go down on any credit agreement, and some some companies will revoke your credit card in the blink of an eye, you can forget about it."
Classic victims of the banks' blacklists include people whose lives and finances are thrown into chaos by illness or a relationship break-up. The self-employed can also fail to satisfy the banks' tick-box approach to lending, especially if earnings are erratic.
But the blacklists are also full of people who are simply careless with their finances, such as those who take time out to travel but fail to ensure that loan payments continue while they are away.
Two lenders, GE Money and Start Mortgages, are prepared to take these people on board - provided they have a house to pledge as security. Many of their customers borrow to repay other debts, such as expensive personal loans and credit cards.
The interest they charge depends on just how bad your credit rates is, although it is inevitably higher thatn the rates charged by the banks and building societies.
"You'll generally pay 2% - 3% above the rates charged by mainstream lenders", says Dowling. "The exact rate you'll be quoted depends on the pattern of arrears, the amount you're borrowing relative to the value of your home, and how well you can prove your earnings."
GE Money's best variable rate of 4.95% is only available to people who have had no credit problems in the last year. If you borrow €150,000 at this rate over 25 years to buy your first home, the payments would work out at €872.52 a month, or €120 a month more than from a typical mainstream lender.
But this comparison is misleading according to GE Money, because its customers will have already been turned down by the mainstream lenders. Rather than brooding about what might have been, it advises customers to consider how the payments stack up against the cost of renting the property, which is the only other option when mainstream lenders slam the door.
While their credit criteria differ, the rates charged by GE Money and Start tend to be similar, with both offering a choice of fixed and variable rates. "It's a toss-up which institution you go for", says Dowling. "However, you might find that Start is more flexible if you're self-employed with irregular earnings".
This is because Start will take more at face value, allowing self-employeed borrowers to "self certify" earnings of up to €50,000 a year without having to verify whgere the money comes from. GE Money accepts self-certification only up to €35,000 a year.
Income levels above these thresholds have to be certified by an accountant's letter: if you declare earnings of over €60,000 a year, you need to provide the lender with a full set of accounts.
Although non-conforming lenders provide loans for up to 30 years, they don't expect people to stay that long. Once you have repaired your credit record, mainstream lenders will be more than happy to take your business at normal home loan rates.
"After three to five years, once you've cleaned up your act, the high street lenders will take you on", says Mackay. "The specialist lenders don't expect you to hang around too long."