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Remortgage with bad credit

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Remortgage with bad credit

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Last reviewed on 18th November 2021

If you need to remortgage with bad credit, you may struggle. This is because most lenders require applicants to have good credit when switching mortgages.

The good news is that if you are approved for a new mortgage, you can switch to a better rate. This can boost your finances by saving you money each month and helping your credit file.

As you already have a mortgage, lenders can assess whether you’ve been repaying your mortgage on time. Having done so will have a positive effect on your application, but having made late payments can make a remortgage difficult.

That being said, there are lenders that may allow you to remortgage, even with serious credit problems. Our advisors can also help you with your application once you’re ready.

Can I remortgage with bad credit?

Yes, a remortgage with bad credit is possible, even if your credit issues are severe. This doesn’t mean to say bad credit remortgages are easy to come by. You’ll need to apply with a suitable lender and you may be charged higher rates than usual.

Lenders that simply don’t accept bad credit will decline applicants even with small credit problems. This often means a perfectly suitable applicant could be declined or told that they’re not eligible to remortgage.

Getting approval for a remortgage is often easier than getting a mortgage on a new property, especially with bad credit. This is because you already have an asset in your existing property, which minimises a lender’s risk.

Will equity in my home improve my chances?

Having equity in your home can boost your borrowing power, but it does depend on the lender you’ve applied with. For instance, applying with a lender that’s not suitable can result in you being declined, no matter how much equity you have.

On the other hand, if you’ve accumulated debt, you may be able to remortgage to release equity so that you can clear some debt. Clearing outstanding debts can also boost your credit score.

Read more: How to remortgage to pay off debt

Will my reasons for remortaging make a difference?

Yes, the reasons for your remortgage can have an effect on whether you’re approved or not. This is because remortgaging has different types of benefits, depending on the deal you’ve chosen.

Reasons for remortgaging include:

  • To improve your existing mortgage rate
  • Debt consolidation
  • Raise capital for a purchase or expense (for instance, to buy a car or holiday)
  • Remortgage to release equity (for investment or home improvements)
  • Relationship breakdown (remortgage to buy out an ex-partner)
  • Let to buy (let your existing home to buy a new home for yourself)

If you wish to remortgage for any of these reasons, our experts can help, even if you have bad credit. Talk to our advisors to get started.

Which credit issues have the most effect on a remortgage?

Adverse credit history can affect your remortgage in different ways. For instance, severe credit issues will have more of an effect on your remortgage than lighter credit issues.

Adverse credit can include:

Each situation is different and your credit file is just one of many factors that lenders will assess.

Which other factors do mortgage lenders assess?

It’s possible to have a brilliant credit score and still not be approved for a mortgage, simply because of failing other assessments.

In addition to your credit history, mortgage lenders will also consider the following:

  • Loan to value or LTV – this is the amount you’re borrowing against how much your property is worth. The more equity you have, the lower the LTV. Having less equity or a smaller deposit will result in a higher LTV. A low LTV typically unlocks better rates and deals.
  • Affordability – lenders will calculate how much you’re able to borrow by assessing your income and outgoings. The more you earn can of course help your application. On the other hand, spending a lot each month can have a negative effect.
  • The dates of your credit issues – older credit issues typically have less impact than recent credit problems. Credit issues that happened over six years ago shouldn’t be picked up by lenders at all.
  • The overall health of your finances – if you’re still going through financial difficulties, lenders will proceed with caution. Having got your finances back on track since your credit issues will certainly boost your mortgage chances.

Can I remortgage my house with a low credit score?

A remortgage with a low credit score can be simple for one applicant, but very difficult for another. For instance, your credit score could be low due to having credit problems, or you may simply have little or no credit history.

That being said, you can improve your mortgage chances by doing the following:

  • Check your credit report
  • Speak to an experienced advisor
  • Calculate your loan to value (LTV)
  • Showcase your income and affordability
  • Increase your credit score
  • Shop around for the best deals

What should I do if I have mortgage arrears?

Trying to remortgage while you have mortgage arrears can be very difficult. Late payments aren’t seen as severe forms of adverse credit, but paying your mortgage late is considered to be severe.

Because you’ve fallen behind on repaying your mortgage, most lenders will be hesitant to offer you a remortgage. This is because mortgage arrears can indicate that you’re struggling financially.

If you had mortgage arrears but have since caught up with your payments, some lenders may consider you. That being said, you’ll still be required to give reasons for why you fell into arrears. Having ample equity can also help you in this situation.

Can I remortgage with defaults?

Although it is possible to remortgage with defaults, you’ll still need to tread carefully. There are lenders that specialise in providing mortgages to applicants with defaults, but you’ll still need to meet the rest of their criteria.

In addition to the rest of your application, lenders will require details around your defaults, such as:

  • The type and number of defaults you have
  • How recent your defaults were
  • Whether you’ve satisfied your defaults
  • If you have any other credit issues in addition

It’s important to note that it’s still possible to remortgage, even if you’ve not yet satisfied your defaults. Lenders will be more concerned with how recent your defaults took place and the health of your current finances.

Can I remortgage with a CCJ?

Remortgaging with a CCJ isn’t easy by any means, but some lenders will still consider you. If you have a CCJ and wish to remortgage, lenders will assess the details of your CCJs in addition to the rest of your credit file.

Lenders will require details of your CCJs, such as:

  • The dates and amounts of your CCJs
  • The number of CCJs you have
  • Whether you’ve satisfied your CCJs

Recent CCJs can cause major problems before a remortgage. In comparison, older CCJs shouldn’t have too much of an impact on your application. This is especially true if you’ve also satisfied your CCJs.

In addition, CCJs for smaller amounts will also have less of an effect than larger amounts. Nonetheless, certain lenders simply won’t entertain CCJs at all.

ask a mortgage broker

Can I remortgage my home with an IVA?

Each lender has its own criteria and while some may consider you for a remortgage with an IVA, others won’t. Furthermore, some lenders will require you to apply after your IVA, whereas others may consider you during your IVA.

It may also be possible to remortgage your home so that you can pay some of your IVA off. Lenders will check whether you’ve been making your IVA repayments on time and you’ll need to provide evidence of this.

An IVA is considered to be a severe credit issue and it usually involves other credit problems such as CCJs and defaults. Lenders will offer some leniency if your IVA took place a number of years ago which can make remortgaging easier.

Can I remortgage a property with a debt management plan?

Having a debt management plan (DMP) can show lenders that you’ve taken some financial control to pay off your debt. That being said, having fallen into debt can also indicate that your finances aren’t as strong as they could be.

The good news is that some lenders will allow you to remortgage with a DMP. Lenders will assess the amount of equity you have in your home, along with details surrounding your DMP. This can include how much you pay towards your DMP each month.

In cases involving debt management plans, your affordability check will carry more relevance. This is because you’ve agreed to pay a set amount towards your DMP and you’ll need to stick within your budget.

Remortgaging after being discharged from bankruptcy

Bankruptcy is one of the most severe forms of adverse credit. It certainly won’t be possible to remortgage during bankruptcy, but it may be possible once you’ve been discharged.

Lenders will assess your finances since your discharge, such as whether you’ve kept a good credit file since.

It’s also important to note that some lenders simply won’t accept applicants that have had a bankruptcy, past or present. That said, a historic bankruptcy is likely to affect your remortgage much less than a recent bankruptcy.

If you are accepted for a remortgage after a bankruptcy, you may have to pay higher rates and fees.

How to get the best bad credit remortgage rates

Having a structured approach to your application will strengthen your mortgage chances quite considerably. What this means is, making sure each aspect of your application is as strong as it can be.

This can involve doing some research beforehand, such as speaking to an advisor and checking the details on your credit file. Furthermore, calculate your loan to value to check the types of deals you may be eligible for.

Checking your latest bank statements to ensure that your finances appear in order can also give your assessment a boost. We’ve listed each factor below in greater detail.

Check your credit reports

The first thing we’ll always recommend with any case that involves adverse credit is to check your credit report. The simple reason is that lenders will carry out a credit check.

Having a copy of your credit file beforehand allows you to understand your own situation in greater detail and the obstacles you may come across.

In some instances, your credit file might be so bad that you may be advised to repair your credit before remortgaging.

Having a copy of your credit file will allow you to see everything that has been registered. You may be surprised to find some credit issues aren’t even on there. Nonetheless, you could be asked to declare historic credit issues with some lenders.

Lenders typically use the big three credit agencies to check your credit report. These are TransUnion, Equifax and Experian. You can also use credit websites that check multiple reports for you.

Don’t worry, simply checking your report won’t leave any kind of footprint or affect your credit score.

Speak to an expert that has experience with bad credit

To get the best remortgage deal, a tactful approach is always advised. Many applicants with poor credit go straight to their bank or another high street lender only to be declined or offered a mortgage at an extortionate rate.

This is probably the worst thing you can do. High street lenders generally tend to deal with clean credit applicants and as a result, aren’t the best places to go if you have credit problems.

If you wish to remortgage with bad credit, you’ll typically require a specialist advisor. If you decide to take your chances but get declined, this can further damage your credit report along with a waste of time and money.

Calculate your LTV

If you have poor credit, it’s a lot easier to get approved for a mortgage with a low LTV. If you’re looking for an LTV of around 75% or less, then getting a remortgage shouldn’t be that difficult, even with severe credit issues.

In order to establish your loan to value, you’ll first need to establish the value of your property. You can always enlist the services of an estate agent to do this for you.

Estate agents usually provide free market valuations which can give you an approximate value of your home. Please note, when remortgaging, lenders will consult their own surveyors to assess the value of your property.

Once you have your property value, you can calculate the amount of equity you have. This is important because a low loan to value holds a lot less risk than a mortgage with a high loan to value.

Showcase your income and affordability

Your affordability is based on your income and spending habits. This is important as it will allow you to understand the financial limits to which your mortgage can go.

It’s important to include every bit of income you have on your application. This includes any benefits you may receive and any other extras that you may be in receipt of.

A mortgage advisor can assess your income to give you the exact amounts various lenders may offer. As a general rule of thumb, a maximum mortgage amount is usually around four times your annual income, although some lenders may lend up to five times.

As each lender is different, the way they assess income will vary. Some lenders only account for contracted hours, whereas other lenders will consider bonuses and overtime.

The same goes for self-employed applicants. Some lenders may require accounts for three years whereas other lenders may accept accounts for just one year.

Increase your credit score

Increasing your credit score isn’t as difficult as most people think. For instance, using a credit card specifically for those with adverse credit can help to improve your credit score.

Rather than using your debit card to make purchases, you can use your credit card instead. You’d then repay your credit card balance in full each month using a direct debit.

This shows lenders and credit agencies that you can responsibly use credit and make payments on time. You’d need to be careful that you do make your payments on time, as failing to do so will damage your credit score further.

Shop around for the best remortgage deals

If you have bad credit, don’t simply commit to the first lender that will consider you for a remortgage. This is because there may be multiple lenders that are willing to approve you.

You can then compare rates to ensure you’re getting the best deal and save money in the process.

Lenders rarely display the criteria they use to assess applications. That being said, advisors do this on a daily basis so we’re able to spot the right lender quite easily.

At this stage, brokers will usually research the market for you and then come back to you with some available products and rates you’re eligible for.

This is truly the best way to ensure that you’re likely to be approved and likely to be getting the best possible remortgage.

If you’ve been declined by a lender, you may need a specialist mortgage advisor. If we can’t find you a mortgage due to recent and severe credit issues, we won’t just say no. We’ll help you to repair your credit score until you’re able to remortgage.

Sometimes it’s just a matter of adjusting your LTV to minimise your risk in the eyes of a lender. Getting approved for a 75% mortgage is a lot easier than a 90% mortgage.

Mortgage rates for bad credit aren’t always the most competitive, so be prepared for slightly higher rates than normal.

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About the author

Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.