Remortgaging can be difficult if you have bad credit.
Just like the process of securing a mortgage for the first time, there are plenty of things to take into account, and this can become increasingly complicated if your credit history isn’t great.
In this guide, you’ll find everything you need to better understand remortgaging with bad credit and what to look out for.
What is bad credit?
Bad credit is a term used to describe the financial situation of someone who has missed payments on debts, failed to pay back loans or borrowed more than their income can support. This can include having unpaid bills, maxed out credit cards or phone contracts, mortgage arrears or even CCJs (County Court Judgments).
Lenders use your credit history as an indicator of how reliable you are at repaying loans and debts. If there is evidence of poor repayment behaviour in your past, the lender will be less likely to approve your application.
What causes bad credit?
Having bad credit is the consequence of not keeping up repayments on your credit agreements. This would include: mortgage, personal loan, car finance, HP, interest free credit etc
Missing payments, over-borrowing and defaulting on loans will all add ‘black marks’ to your credit file, which future lenders will be able to look at.
Is it possible to remortgage with bad credit?
When it comes to remortgaging with bad credit, some people find it difficult to be approved by mainstream lenders. In this case, specialist bad credit lenders may be able to help you, as they are more willing to look beyond your credit issues.
Different lenders and banks will have different standards when it comes to evaluating a person’s creditworthiness. This means there is no definitive score or type of bad credit that triggers a rejection.
Specialist lenders place less emphasis on history and instead focus on your current circumstances. They will also consider factors such as your job security and overall debt load when assessing an application.
As these lenders have a different risk appetite than high-street banks, they often have higher interest rates and fees.
It is worth noting that most specialist bad-credit lenders still require the borrower to have a good level of equity in their property before agreeing to a remortgage. This means that borrowers with little or no equity may need to work hard in order to build their equity before applying for a new mortgage – this could involve savings or paying off existing debts.
Remortgaging is when a borrower moves their mortgage from one lender to another, usually for the purpose of obtaining a better interest rate or terms. There are various reasons why someone may decide to remortgage, including:
- To move to another interest rate deal as the fixed rate is ending
- The loan to value has improved
- To reduce the monthly repayments
- To consolidate unsecured debt
- Borrow for home improvements
No matter what your reason for wanting to remortgage, bad credit does not necessarily mean it’s impossible but it might limit the options available to you in terms of getting approved by lenders or getting the best possible deal on interest rates and loan amounts etc.
You may also like: Top 8 acceptable reasons for a remortgage
What affects your credit rating?
Your credit file tells a story about how you have managed your credit arrangements over the last six years. It contains positive and negative markers that the lenders can use to build up a picture.
Positive entries are generated by keeping within your credit limit, always making payments on time, settling debt early and not having too many loans or credit cards.
Some of the negative points could be:
Setting up new accounts too frequently can have an adverse effect on your credit score. Every time you do this, your score will go down temporarily. However, if you keep doing it without giving enough time for your credit rating to recover in between, then it can damage your credit score.
Making multiple credit applications in a short period of time can have a negative impact on your credit score, even if those applications are accepted. Each application will be recorded as a hard search on your credit report. This can alert lenders to the fact that you are seeking out more borrowing which could cause them to become wary of approving applications.
Going over your credit limit or always utilising your full overdraft can give lenders the impression that you’re having a difficult time financially, or that you are heavily reliant on borrowing. This can be detrimental to your credit rating as it may lead lenders to believe that you are not able to manage your finances responsibly.
Failing to make regular payments to your lenders will have a notably negative effect on your credit score. If you miss several payments, this will be recorded as a default on your credit report and can remain there for up to 6 years, lowering your score significantly.
Which credit issues have the biggest effect on remortgaging?
Remortgaging can be a great way to get access to more attractive deals and better mortgage rates. However, if you have credit problems it is important to understand the different factors that can influence your options.
Here are some of the common credit issues that can affect the likelihood of being approved for a remortgage:
- Late payments – this includes missing the payment deadlines on existing mortgages or other forms of debt or credit agreement.
- Debt-to-income ratio- this reflects how much debt you have compared to your total income. This is a reflection of your current situation.
- County Court Judgments (CCJs) – these refer to court orders placed against you when you have failed to repay debts.
- Debt management plans (DMPs) – these are used when you have an overwhelming amount of unsecured debt and cannot meet all of the monthly payments.
- Repossession – This occurs when you are unable to keep up with mortgage repayments, causing the property to be taken away (to be sold) by the lender.
- Bankruptcies and IVAs (Individual Voluntary Arrangements) – These both form part of your credit file and will make it significantly harder for you to be considered for a remortgage.
Can you remortgage without a credit check?
If you opt to remortgage (product transfer) with your current lender, they generally don’t need to run a credit check on you as they already have a full understanding of your payment history. This can help speed up the process and make it more convenient for you.
Each lender has their own policies, and some may still carry out credit checks on current customers who are remortgaging. However, if you choose to switch to a different lender, then you will be subject to a full credit check in order to assess your eligibility for the new loan.
It’s important to keep this in mind when considering options and researching potential lenders.
Can you remortgage with a debt management plan?
A Debt Management Plan (DMP) is an arrangement between a debtor and their creditors to pay off debts over a specified period of time. It can be beneficial if you are struggling with debt, as it allows you to make smaller regular payments which tend to be more manageable. Additionally, DMPs can help prevent interest charges from accumulating further on existing debts and also offer protection from creditors taking legal action against you.
Remortgaging with a debt management plan (DMP) is possible however, it’s important to note that this depends on the lender’s individual policies, and not all lenders will accept applicants with a DMP.
How long does it take to remortgage?
Remortgaging a house is typically a straightforward process, with most cases taking around 4-8 weeks from start to finish.
Applying for a remortgage works much like making a regular mortgage application. Depending on the circumstances of your application and how easy it is for the lender to assess your financial situation this timeframe can vary.
It’s best to start looking into options at least three months before your current deal ends. This will allow you enough time to assess all available options and find the best mortgage that suits your specific needs and financial objectives.
What if you have been refused a remortgage?
If your application has been turned down, it’s important to understand why this may have happened.
Our mortgage brokers will be able to help identify more suitable products for bad credit customers and advise on the best way forward.
It’s important that you don’t just keep applying with different lenders. Each time you do this affects your credit file and reduces the likelihood of a lender accepting you.
Does bad credit affect remortgaging?
Yes it does. Past credit issues will have an impact on which lenders you can apply to. Many of the more understanding and flexible lenders are not well-known names and you would find it difficult to discover them. Drake Mortgages are independent mortgage brokers and we have access to over 100 lenders, including these specialists, giving you maximum choice.
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