Outside the mainstream

Pros and cons of a sub-prime mortgage.

Don't assume that no mainstream lender will give you a mortgage just because you have missed a few loan repayments in the past, or because a certain part of your income doesn't show up on your payslip. Explain your past and present financial situation as best you can on your mortgage application.

Use a mortgage broker to shop around, but remember that brokers don't represent all lenders: get a list of the ones they will check on your behalf and then apply to the rest yourself. If a mortgage broker recommends a sub-prime loan, make sure all mainstream mortgage options have been exhausted first.

Brokers charge application fees on sub-prime mortgages, which they don't charge on mainstream mortgages.

As this can be a significant extra expense and as fees will vary among brokers, make sure to shop around for broker services.

If lenders keep turning you down for a mortgage and you don't understand why, check your credit history for a fee of €6 by contacting the Irish Credit Bureau (ICB) at 01-260-0388. There could be a mistake on your record, it could be out of date or someone else's information may have been mixed up with yours.

Repossessions are rare events: lenders don't like to inflict them because they are legally messy. Neither Start Mortgages nor GE Money has repossessed a house since they started in business, despite incurring a higher level of defaults. However, any defaults will make it difficult to get approval for future loans.

If you must use a specialist lender, remember that you are paying higher interest than you would on a conventional mortgage, but if you consolidate credit card debt and personal loans into the new mortgage, you may be able to lower your repayments in the short-term. Still, you should be aware that by paying back this short-term debt over the longer-term, the total interest bill will be higher.

Try to switch to a lower interest mortgage offered by a mainstream lender as soon as possible. It may take a few years of full, on-time repayments to the sub-lender before other lenders will even consider your business, but after five years, details of your past debt difficulties should be erased from your credit history.

Keep some savings aside for emergencies such as a serious illness or the loss of a job. If you don't have any income protection as part of your company pension scheme, consider taking out an income protection policy that will repay the mortgage in the event that you are too sick to work.

If you are remortgaging to a sub-prime lender, resist the temptation to borrow more than you absolutely need.