Building societies are now much more cautious about making loans to home-buyers with a history of arrears. 'An awful lot of people are going to go along to their building society to be told, 'Yes, we know you got over your problems, but because you were in arrears a year ago we are not going to lend to you again,' ' says Ian McKenna of Blyth McKenna, the mortgage broker.
Lenders are naturally wary after a year in which their bad debts rose steeply. However, Mr McKenna argues that building societies may also be constrained in their lending strategies by capital adequacy requirements laid down by their regulatory authority, the Building Societies Commission.
The rules are complex and mean that societies are able to make the same amount of capital go further if they lend to borrowers who have no previous arrears problems. For new advances, a debt problem is defined as more than three months' arrears at any point during the past three years.
When approving new mortgage loans, societies must check whether this level of arrears has been exceeded, in order to record the appropriate level of capital backing required.
The Nationwide building society says it uses this threshold when assessing mortgage applications. 'If the arrears were more than this, we'd have to look much more closely,' said a spokeswoman for the society.
In general, however, the societies maintain their lending policies are not directly affected by the Commission's capital adequacy regulation. 'This is merely something we have to comply with. It would not affect our decision as to whether we would lend to a borrower who had previous arrears,' Frank Bartlett, head of lending at the Woolwich, said. He added that his society tried to be sympathetic to applications from existing Woolwich borrowers.
Phil Jenks, controller of mortgage lending at the Halifax, concurs. 'The fact of previous arrears is not in itself an obstacle. We would want to go back over their track record. It would be very hard not to help if a borrower had a clear round for 10 years and then hit a problem with, for example, redundancy,' he said. Mr Jenks too asserted that the society's existing customers could expect a more understanding response.
Nevertheless, it is far more difficult to secure a mortgage loan than it was in the rubber-stamping mid-Eighties.
Centralised lenders may be prepared to consider lending to borrowers who have maintained a good payments record for the past year but have been turned down by building societies because of problems in the more distant past.
But the message for anyone who has developed arrears in the past and is now looking for a mortgage is to stick with the present lender. For those who are having difficulties at present, the path may prove smoother in the future if arrears are kept on the right side of the three-month threshold.