There are now hundreds of thousands of borrowers who have felt the scourge of repossession in recent years and, despite reports of a booming housing market, figures for repossessions remain surprisingly high at 650 a week - equivalent to more than 30,000 households a year.
The companies that specialise in lending to people with poor credit histories are under increasing scrutiny from the Office of Fair Trading (OFT) to ensure they do not overly penalise clients with excessive interest rates and outrageous charges for early repayment of loans. One lender, City Mortgage Corporation (CMC), has been the focus of intense media coverage because of its so-called dual interest rate mortgages, if one payment is missed the interest rate goes through the roof.
Another lender, Paragon Mortgages, (0800 44 00 99), has recently launched Freshstart Mortgage aimed at "victims of the recession". As long as applicants can prove they had a good credit rating before things went wrong, subsequent repossession or court judgements are not an issue, it says. "We want evidence of a good credit history at some point in the past, an understanding of how it all went wrong and a case to support the view that applicants are resolving their financial and personal difficulties," says John Heron, a director. But Paragon will only lend up to 80 per cent of the property price and the Freshstart rate is expensive, 3 per cent over standard variable rates. After three years, however, this 3 per cent premium will often be removed.
John Charcol, a firm of mortgage brokers, usually steers clients towards the Kensington Mortgage Company, which charges a slightly lower rate than Paragon but which stays in place for the life of the mortgage. Kensington expects borrowers to switch to a mainstream lender after a few years when their credit record has improved. Both Paragon and Kensington charge three months' interest if a client goes elsewhere.
Those "victims of the recession" who do approach mainstream lenders are not necessarily wasting their time. A customer deemed low risk by Paragon or Kensington may be just as acceptable to the Bradford & Bingley building society, for example. "We look at each individual case, and if a customer was simply caught up in the events of the early Nineties through no fault of their own, and is now back on his or her financial feet, we would certainly consider lending to them," says James Evans, a spokesman. Nationwide takes the same view. "If, for example, a client has been renting since he lost his property and rent payments are up to date, we would look sympathetically on such a case," it says.
Different lenders will have different policies, however, and if you have a bad credit history, paying for a mortgage broker to trawl the market could be worthwhile.
The Council of Mortgage Lenders (CML) warns that it is unlikely that levels of arrears and repossessions will fall back to the low levels prior to the recession. Michael Coogan of the CML says: "Rising interest rates mean that people coming out of fixed or discounted mortgage deals may face a reasonably large increase in monthly payments. At the same time, the low take-up of private mortgage protection insurance among new borrowers does not augur well if they lose their jobs in the future and need help to meet their mortgage payments. The full consequences will not be felt until a downturn in the wider economy occurs."
Borrowers should note, however, that the mortgage protection insurance offered by lenders is generally expensive.
Home owners on income support (about 400,000) may also face financial difficulties because of the way the Government calculates mortgage help. Where borrowers do qualify for help, and many people will not qualify at all, it is only for the interest element of payments. And interest is calculated by taking the average rate from a number of building societies, which is lower than the market as a whole, the Halifax et al having now become banks.
The net effect is that the rate paid out by the Department of Social Security will in many cases be lower than the rate a borrower is paying.