David Ingram: rode out crunch

Start Mortgages, the subprime lender routinely criticised for its approach to pursuing bad debts, has switched its focus to prime lending as most of the competition for mainstream borrowers has withdrawn from the home-loans market.

The move effectively puts an end to subprime mortgages in Ireland, as Start was the only survivor of a group of six lenders which had set up in the last few years to serve borrowers with poor credit histories or irregular incomes who could not get loans from ordinary banks and building societies.

Springboard Mortgages, Irish Life & Permanent's subprime vehicle, stopped accepting new applications in April. The others – GE Money, Nua, Fresh and Stepstone – all closed for business in 2008 as funding lines dried up and financial backing disappeared.

Start, however, managed to ride out the worst days of the credit crunch on the back of pre-existing funds it raised before the crisis, chief executive David Ingram told the Sunday Tribune in an interview late last year. The business has now emerged as a small player competing for quality borrowers with big lenders AIB and Bank of Ireland, according to brokers.

Brokers say Start has been able to adjust its lending model because mainstream banks and building societies are stress-testing borrowers so aggressively that the effective interest rate for approval has come up to the relatively high rates Start actually lends at. For instance, Permanent TSB is testing whether borrowers can afford repayments at 6.15%, roughly equivalent to Start's rate for "near prime" new lending.

"Because a lot of banks are stressing at such high levels, it's not clear whether subprime is going prime or the other way round," said Karl Deeter, operations manager at Irish Mortgage Brokers.

The mortgage-market dynamic has changed so dramatically that for the last two months Start has been declining to refinance even performing loans from mothballed subprime lenders eager to unwind their businesses. Another factor at play was the introduction by the Financial Regulator of the code of conduct on mortgage arrears, which applied consistent rules for debt collection across both mainstream and specialist lenders, making subprime loans more risky.

"The quality is better in the marketplace now and nobody is picking it up, so there is no reason to be in the subprime space any more," said one informed source.