Subprime customers returning to main banks
Start say their mortgages have proved to be an effective way of rehabilitating a customer's credit profile
Tuesday January 06 2009
A NEW study has shown that the majority of people who take out mortgages with expensive subprime lenders move to conventional lenders within three to four years.
Subprime lenders charge up to 2pc more than mainstream banks and building societies.
Leading subprime lender Start conducted a survey of its customers and found that half of those who took out subprime loans with it in 2005 have now moved to mainstream lenders like AIB and Ulster Bank.
A further 42pc of those who took out subprime mortgages in 2006 have moved to mainstream lenders.
Paul Murphy of Start said many of the loans were taken out by people who chose to consolidate short-term debts, such as credit card bills, into a new mortgage.
Start has been heavily criticised as it tends to take a large number of repossession actions in the High Court.
But Mr Murphy said the majority of Start's customers were married, aged between 38 and 45, and in continuous full-time employment.
The Start boss insisted the study confirmed that subprime mortgages have proved to be an effective way of rehabilitating a customer's credit profile.
"We have found that the majority of customers who were previously experiencing credit difficulties have taken the opportunity, re-established a positive credit position and moved back to a traditional mortgage provider," he said.
For people with an impaired or unproven credit rating it can be almost impossible to meet the stringent criteria laid down by mainstream lenders, Mr Murphy said.
Start Mortgages said it found that customers often face credit problems as a result of some life-changing event, such as loss of employment, business failure or going through a divorce or separation.
Through no fault of their own, such issues can result in a damaged credit history and can be the main stumbling block that many of these people encounter when applying for a traditional mortgage, Mr Murphy added.
- Charlie Weston Personal Finance Editor
