The banks who offer life after debt

This week saw the launch of what was described as a mortgage "first" - a home loan specifically designed for divorcees who are financially dependent on their ex.

The "divorcee mortgage" on offer from mortgage broker Charcol enables those receiving regular maintenance payments to obtain a home loan in their own right, and the company claims it could throw a lifeline to a sizeable group of people, some of whom would typically be refused a loan.

The new deal, the result of a link-up with Bank of Scotland, is the latest sign that a growing number of high street banks and building societies are starting to woo those people who until recently would have struggled to get a mortgage from a mainstream lender. This diverse group includes people who have had debt problems but also many more who have done nothing to deserve a blot on their financial copybook.

Birmingham Midshires, a subsidiary of the Halifax, intends to enter this so-called "non-conforming" market in the autumn. "It's an area where we think we can go in, shake things up and bring a consumer-friendly approach. We've got big plans for it," says a spokesman.

Meanwhile Britannia building society recently moved into this market through its acquisition of Platform Home Loans, one of the sector's major players. It joins Bristol & West and Chelsea building society, both of which already offer loans to non-conforming borrowers, and specialist players such as Kensington Mortgage Company.

More than 8m people - one in four of the adult population - have had difficulty obtaining credit from high street banks and other lenders, according to some estimates. It may be they have had problems with debt or have county court judgments (CCJs) registered against them. Some will have had a previously exemplary financial history but were knocked sideways by divorce, redundancy, illness or bereavement and perhaps failed to keep up with their credit card payments.

Others will have encountered problems even though their financial position is perfectly sound: people who have been living overseas and so have not built up a credit history in the UK; those people who for whatever reason are not on the electoral roll; and growing numbers of self-employed and contract workers whose income is irregular or who don't have the necessary accounts going back several years.

The good news for these people is that all this new competition appears to be driving down rates for non-conforming loans - Ray Boulger at Charcol reckons that in broad terms rates have probably come down by 0.25%-0.5% over the past year or so relative to standard rates. The dodgy practices that in the past brought the sector a bad name have largely been outlawed, although it's an area where people still need to tread carefully, not least because non-conforming home loans can be a lot more pricey than standard deals.

What you are charged will depend on your credit score and will also vary greatly from lender to lender. It's also important to check what the charges and terms are - these deals can often come with quite high arrangement fees of around £300-£400, and with some lenders you are tied in by redemption penalties for around three years. With many of the deals you will have to find a deposit of 15%-25%.

So why are these mainstream lenders piling in all of a sudden? It's not because they have all developed a compassionate streak overnight but rather the general home loans market is now so cut-throat that they are increasingly turning to niche areas to actually make some money.

Many of these "non-conformist" borrowers have fallen foul of the increasingly automated credit checks carried out by larger lenders where credit scoring decides the fate of every mortgage application. "If the applicant fails to reach the required score, the computer-generated rejection letter is automatically sent. It is simply too expensive to ask the customer "why?" once the computer says "no," says market analyst Datamonitor.

It can be alarmingly easy to end up with a CCJ - in some cases people don't even know they have got one until they come to apply for a mortgage. You could end up getting one if, for example, you rented a TV in a shared student house and then in the hurly-burly of graduation you forgot about it and moved address.

Shopping around for a mortgage is especially important if you've got problems with your credit record. Just because one bank or building society has rejected you, this doesn't mean they all will. If you've got only £2,000-£3,000 worth of CCJs and they were settled at least a year ago, you may be able to get a "normal" deal.

However, if you are turned down it's not a good idea to apply willy-nilly to every other lender in the high street in the hope that one will come up trumps. That's because each lender will do a credit check and all of these will show up on your credit file. After three or four credit checks you could find you are turned down automatically because it looks like you're desperate and possibly in financial trouble.

The first time you are turned down you should find out why. Ask the lender and if they won't say, write to the two main credit reference agencies - Experian (www.experian.co.uk) and Equifax (www.equifax.co.uk) - requesting a copy of your credit file.

You might then want to talk to a good mortgage broker who can advise which of the different products out there may be suitable.

• Michael Shuttleworth, 24, went to a high street bank for a mortgage but was turned down because he was not on the electoral roll.

"I'd lived at five addresses over the past three years because of work and what have you, and I'd never been on the electoral roll. When I went to get a mortgage the banks were not happy," says the married father-of-two. He had rented with friends and wasn't able to produce any bills in his name. "I didn't have any proof of where I had been for the past three or four years."

After speaking to an independent financial adviser he signed up to a loan with Kensington Mortgage Company fixed at 7% for three years.

Mr Shuttleworth, of Northallerton, North Yorkshire, who is a management accountant for the Environment Agency, took out the £63,000 loan in March and says that by the end of the fixed-rate period he will be back on the electoral roll and will be able to switch to a standard deal.