Bad Credit Remortgage
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Bad Credit Remortgage (Part 1)
Can you remortgage with bad credit?
Yes, absolutely. It’s not too much different from purchasing a property with bad credit, except with a remortgage you’re already in the property, so it speeds up the transaction and makes it easier.
Another good thing is that often when people are remortgaging they’ve built up equity in the property, which also helps. All your past mortgage payments, plus any increase in your property’s value build equity, which just gives you more options.
Ultimately it means you have a lower loan to value, which means less risk to a lender and more options for you.
How can I remortgage with bad credit? How does the process work?
There are lenders out there that will consider bad credit. It’s essentially like any normal mortgage application except you’re already in the property. So that stage of finding a property obviously doesn’t apply when you remortgage.
It’s just a case of identifying the right lender. A broker is going to look at your whole personal circumstances and what’s on your credit file to decide what’s going to be the right option for you.
Can you be rejected for a remortgage?
Unfortunately, with any mortgage application you could ultimately be declined, and that could be for a variety of reasons. Perhaps the property is not suitable, or there isn’t enough equity in the property, or it’s been down-valued. You may also be declined if there were any discrepancies on the information provided.
But If everything is told truthfully and accurately to a broker and they have done their due diligence, there should be a low chance of being rejected. We don’t put in applications if we think they’re likely to be rejected by a lender.
Can you get a remortgage after bankruptcy or with a CCJ, IVA or default?
Yes, you could with all of those. Those options have various levels of severity, and bankruptcy and IVA are the harshest forms of adverse credit. That would restrict your options – you would need quite a bit of equity in the property to be able to remortgage: usually about 25% or 30%.
With things like a CCJ or default, it’s very circumstantial. It could depend on how much the default was for and when it was registered. They’re much more minor forms of adverse credit, where you could have, say, 10% equity in the property and still be able to remortgage.
It could depend on the specifics. For example, if the default was in the last couple of months, that’s going to restrict your options. But if it’s more historical, perhaps two or three years ago, you’d have a lot more choice.
Can you remortgage with a debt management plan?
You could. A debt management plan will also usually have defaults associated with it and the options will depend on the specifics. When it was registered and how much is outstanding will be important. You could even keep the plan in place if you wanted to, as long as it’s all been well maintained.
You might also have the option to remortgage and pay off that debt management plan, if that’s financially viable. We sometimes will come across people who have had a debt management plan for seven or eight years – and if it’s quite historical, that will open up more and more lender options.
What deals and rates are available if you are remortgaging with bad credit?
If you are remortgaging a specialist lender, you can expect a higher interest rate because of the risks associated with that. Again, it depends on the specific circumstances.
If you’re remortgaging with a bankruptcy and an IVA, that probably means a high interest rate. For something minor, like lower value defaults or CCJs, you may get rates that are closer to high street products.
The amount of equity you have in the property will be a factor. If you’re remortgaging at 85% Loan to Value, you’ll have a higher rate compared with remortgaging at 60%.
Are there many bad credit remortgage lenders?
Yes, which is positive. There are quite a number of adverse credit lenders – about 10 or so. Also, some smaller building societies will consider a bit of adverse credit, as well, and even people with active debt management plans.
If we include all of those, you could have a choice of 10 to 15 providers, and the more lenders you’ve got available will open up options and potentially better rates.
Again, it depends on your circumstances. If you’re looking at remortgaging with quite a recently discharged bankruptcy, that’s going to give you a very thin pool of lenders. But if you’ve got a live debt management plan that started four or five years ago, so there is still a default sitting on your credit file, perhaps 10 to 15 lenders might consider that.
Is it better to improve my credit rating before remortgaging?
The credit score you get from the credit reference agencies is a very subjective number, and it’s very difficult to influence that. But having a look at your credit file and what you could do could be advantageous.
For example, if you had multiple missed payments that are quite recent, that’s really going to restrict your lender options and not look good to a lender. If you see those on your credit file, get them brought up to date and keep a clean credit profile for three to six months. That will definitely improve your chances of being accepted.
How do I improve my credit score or rating before remortgaging?
We find sometimes that people aren’t on the electoral roll, and that could help improve your credit score significantly. Then, just have a look at what is actually on the credit file.
If you have missed payments on an agreement, bringing those up to date will certainly help. Sometimes people have a CCJ from a parking ticket, where the letter has gone to a previous address and they’re completely unaware of it. It’s shown as unsatisfied.
If you pay that off, it may well improve your credit score and increase your lender options for remortgaging.
How do I apply for a remortgage with bad credit?
The documentation that lenders ask for is the same across the board. Typically it’s going to be your latest three months bank statements and payslips, or tax returns if you’re self-employed, plus ID and proof of address. That’s pretty standard across all lenders.
With the specialist lenders, because they’re taking on more risk, they may want more documentation. To give an example, when we submit applications to high street lenders, they might only just want the latest copies of payslips and bank statements.
Specialist lenders might have a lot more queries and want more documentation. But that would be picked up when the application gets in, depending on what exactly the lender wants.
Is there any other information or documents needed for a bad credit remortgage?
The only other thing to consider is having a property valuation. You need to know what the property is worth for a broker to look at the options.
Properties that are for sale nearby often gives you a good indication – as long as they match up. For example if a property across the street is a four-bedroom detached and you have a three bed semi, there’s going to be a difference in price. But a nearby three bedroom semi-detached may be priced in the region of what yours is worth.
You could also potentially get an estate agent in – although they might try and talk you into putting the property on the market. Other than that, when an application goes in a lender might want further documentation, but it will just depend on what they come back with.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
SPEAK TO AN EXPERT
Bad Credit Remortgage (Part 2)
Can I remortgage without a credit check?
Any time you make a full application with a lender, there’ll always be a credit check involved, because lenders need to see exactly what is on the credit file. You can’t do it without a credit check.
Mainstream lenders will all do a credit search and look at the credit score. If someone’s got quite a low score, it’s likely to mean an automatic decline. But specialist lenders manually assess the application and look at exactly when events have occurred.
If you have several defaults from three years ago, you could in theory have a credit score of 100 out of 999 – but if it meets a specialist’s criteria, they could still take it.
Can I remortgage with unsecured arrears or even mortgage arrears?
You could absolutely, with both. Unsecured arrears could be missed payments on a credit card, and that’s treated a lot less severely by lenders.
It will depend on the circumstances. If there have been multiple missed payments recently, your options will be influenced by how many there are, when they were missed and the value.
Someone who has quite a few missed payments very recently will have a thin pool of lenders available to them for a remortgage. If those missed payments were quite historical, perhaps a year or two ago, that will open up more lenders.
Mortgage arrears is a more severe form of adverse credit. But if the mortgage is all up to date now and the issue is a couple of years old, that will open up more lenders. If there are missed mortgage payments very recently, that’s going to really restrict lender options.
If people are perhaps six months behind on the mortgage, but they’ve actually made all the payments, some lenders will accept that scenario.
What is a bad credit score?
A bad credit score could be influenced by multiple things because ultimately, it’s just a number assigned by the credit reference agency, but it could be influenced by various factors.
If you have a couple of missed payments, you might notice your credit score takes a slight hit, whereas something like an IVA or bankruptcy will cause significant damage to your credit score.
The good news is that the specialist lenders don’t look at the score. Even if it’s 100 out of 999, you may still have lender options because these specialist lenders focus on what exactly has happened, when, and why.
Can you release equity with bad credit?
You could, and it could be for all sorts of reasons. For example, you might want to pay off some past credit issues to give you a clean slate.
Somebody might have an IVA and want to get that paid off and move on with their life. Or it might be a debt management plan they want to clear.
It will depend how much equity you have in the property. If you only bought it a couple of years ago and you don’t have much equity, you will have quite a high Loan to Value which will restrict the options. But if you have a fair bit of equity in the property, that’s going to help.
When you’re looking at remortgaging, lenders typically go to a maximum of 90% of the property value. If there’s a bankruptcy or an IVA on the file and it’s fairly recent, you’re probably going to be looking at 70% as the maximum Loan to Value for a remortgage.
Can I remortgage if my partner has bad credit?
Yes. Again it’s going to depend on certain circumstances. Sometimes a client owns a property and has completely clean credit. They meet a partner and they move in, but they have adverse credit.
If the homeowner is remortgaging without including the partner, there are still going to be mainstream options. To add the partner to the mortgage, their adverse credit profile has to be taken into account.
For any joint application, both people’s credit files are taken into account and it always looks at the worst of the two. So it could be done, but it depends what you’re looking to do and why.
If you want to add a partner to the mortgage, but it will mean going from a mainstream lender with a competitive interest rate to a specialist lender, that might not be the right thing for your circumstances.
How does credit card debt affect a remortgage?
With credit card debt, usually 3% of the outstanding balance is taken as a commitment. With some lenders, if you are looking to pay debts off, they won’t class it as an ongoing commitment.
With others, loans, credit cards or other debts will still be factored in, even if you’re paying them off. It’s just about looking at what’s going to be right.
One thing to bear in mind is that credit card debt is unsecured – it’s not secured against the property. If you do remortgage to pay that off, you are effectively converting it into secured debt, putting your home at risk. So there’s that to factor in as well.
Can you consolidate credit cards ah credit card debt twice?
You could, and there’s no real limits on how many times you could do it. One thing to bear in mind, though, is that if you do keep consolidating debt, you’re turning it from unsecured debt to debt that’s secured on your home.
You need to weigh up the pros and cons of that. If you do it multiple times, you’re adding more and more to your mortgage balance – and really you want that mortgage balance to be coming down. Ultimately you want to own the property, rather than constantly increasing your mortgage balance.
The other question is whether it’s manageable. Is it currently manageable for you without putting any great strain on your finances? If consolidating into the mortgage is going to make you a significant saving and put you into a better position, then potentially it’s worth doing. But remember that moving it from unsecured to secured makes it more risky for you.
Is it better to have a personal loan or credit card debts when remortgaging?
Neither is necessarily better or worse, but they do work slightly differently.
Somebody might have, for example, a £5,000 loan at £250 a month. That’s what the commitment will be taken as. Whereas if someone’s got a £5,000 credit card, lenders will take 3% of that balance – so it works slightly differently.
How does remortgaging a Buy to Let work with bad credit?
Again, it could be done. Typically, with Buy to Let you need more equity in the property because it’s essentially a commercial transaction. Normally just for the purchase of a Buy to Let you need a 25% deposit.
So if you’re remortgaging, you’re going to have a limit of 75% of the property’s value. Buy to Let mortgages are typically more restrictive with adverse credit and lenders have tighter criteria around that.
The reason is that with Buy to Let, somebody else is living in the property. Ultimately, it’s less risk to you if anything happens. In your own residential property, you’d do whatever you could to keep the roof over your head. So lenders are more willing to accept adverse credit on a residential rather than a Buy to Let remortgage.
How can a mortgage broker help?
A mortgage broker is ultimately acting for you and looking for the right option. Very often people come to us and their own bank has just declined them for a remortgage.
A broker has lots of options with lenders so we could guide you on whoever’s going to be the right choice for your situation. Plus, we take care of the whole process for you. We get the application submitted and manage it through to completion for you.
When you go and see your bank, you’re limited to the deals they have. Everyone is familiar with the mainstream banks, but your credit situation may mean you can’t access those.
Meanwhile, the specialist lenders don’t have any retail presence – they typically only work with brokers directly. So to access them you need a broker – but you’re also getting the benefit of all that support and your application being managed all the way through to completion.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
