Subprime lenders will have to apply to the Financial Regulator before April 30th for permission to operate under new rules that came into effect yesterday. Simon Carswell, Finance Correspondent, reports.

The lenders, which provide mortgages at higher rates than the mainstream banks to borrowers who cannot obtain home loans elsewhere, will come under increased regulation in three months' time. While most subprime lenders have adopted the regulator's consumer protection code, they will now be formally policed.

They will have to ensure they do not missell mortgages, they highlight the higher cost of the mortgages to customers and they help distressed borrowers manage their arrears and do not immediately turn to the courts.

Pat Neary, the regulator's chief executive, told an Oireachtas Committee on Wednesday that he hoped subprime lenders would assist struggling borrowers in meeting their repayments and only initiate repossession proceedings as a "last resort". Home repossessions increased from 311 in 2006 to 465 last year.

Subprime lender Start Mortgages had the highest number of repossession orders in 2007 with 171 suits before the High Court.

Shane O'Sullivan, chief executive of subprime lender Springboard, said the change would "bring all lenders on to a level playing pitch". A spokeswoman for Start welcomed the increased regulation, saying: "We believe that customers should be protected in exactly the same manner as they are with the prime lenders in this market."

The subprime market is worth about €1.5 billion but is expected to grow to €4 billion by 2010.