Remortgage with Bad Credit | What You Should Know

Remortgaging is a standard part of your home-owning life, often used every few years to improve your deal, lower monthly mortgage payments if possible, and make sure you’re not paying too much interest. However, remortgaging involves a full affordability and credit check, which can make them hard to obtain for people with bad credit. This can lead to a cycle of financial distress where the best deals are needed to improve your credit but are locked away from you due to your current credit history.

At Clifton Private Finance, our mortgage team work tirelessly for our clients, using their vast experience to get the best deals possible. Want to know more about what considerations are made when looking for a bad credit remortgage and how to achieve the seemingly impossible? Read on…

Why Remortgage?

There are several reasons why you might want to remortgage, including:

• Your current fixed-rate is coming to an end - When your fixed-rate term finishes, you could end up on your lender’s standard variable rate (SVR) unless you proactively consider remortgage options. The SVR is rarely the best deal out there and could add hundreds to the monthly cost of your mortgage - not great if you’re already struggling with poor credit. Remortgaging at this stage gives you the chance to obtain another beneficial fixed-rate deal for the next few years.
• Rates have dropped and you want to take advantage - If the national economy improves, mortgage rates will drop and there will be an opportunity to refinance your mortgage to your advantage. If you were previously on a high rate, remortgaging can save you thousands, even when you take early repayment charges (ERCs) into account.
• You’re looking to unlock some equity as cash - Remortgaging is often done to get back some of that money you’ve put into the house, perhaps for home improvements, to help out a family member, or for debt consolidation.
• Your personal situation has changed - Relationships ending, career changes, and other life circumstances can mean that you need to revisit your mortgage.

With bad credit and without help from an expert, however, getting a remortgage can become difficult - and those you can find are often on worse terms than your current deal.

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Understanding Bad Credit

Your credit history is the primary way mortgage lenders can assess the risk you pose as a borrower. Detailed records of your financial responsibility over the previous months and years are used to provide your credit score. High scores are good and mean you present as a low risk borrower, while low scores are generally avoided by lenders.

When applying for a mortgage, lenders will look first at that score and typically only engage further with the application process if the number is high enough.

What Causes a Bad Credit Score?

There are several things that can affect your credit score - and not just your past payment history. The credit reference agencies (CRAs) aim to provide a comprehensive overview of your reliability, which means it includes details such as whether you are registered on the electoral roll and the length of time you have remained with your credit providers.

The following are all part of your credit history:

• Current credit usage - The level of credit you currently have and how much of it you are utilising is a key component of your credit score. Maxing out credit cards or constantly using your overdraft are examples of poor credit usage, while having credit available but left untouched except in emergencies presents a good credit profile.
• Credit account stability - The length of time you’ve had credit accounts, such as bank accounts or mobile phone contracts, can result in a positive score.
• Missed payments - If you’ve previously skipped or been late on a mortgage payment, credit card payment, or utility bill, this will show up here.
• Defaults - This is where you’ve missed multiple payments (three to six months or more) and the creditor has moved to their debt collection stage or even written off the debt as unlikely to ever be paid.
• County Court Judgements (CCJ) - If you’ve ever been taken to court for a debt and had a CCJ placed on your file, this will show on your credit history.
• Individual Voluntary Agreement (IVA) - An IVA is a formal debt solution that is used in the UK as an alternative to full bankruptcy. If you have ever undertaken an IVA, this will remain on your credit history for six years.
• Credit applications - Each time you make a full credit application, it will be marked on your credit history and temporarily affect your score. This happens whether or not you are successful. Multiple applications for credit in a short space of time is an indicator of desperation and is seen poorly by lenders.
• Financially linked people - Shared financial activity will affect you both, so if you have a shared bank account or joint mortgage with someone who has poor credit, this may impact your credit history.
• Address and ID information - Your personal information and address details are part of your credit report. If these are validated (for example, you are on the electoral roll) then it will improve your score.

While credit score (also called ‘credit rating’) and credit history are linked, they are not the same. The credit score is a simple number that represents a snapshot of your current financial situation, while credit history is the more detailed understanding of the specifics that determine that score. When you first approach a mortgage lender, they will perform a soft credit check that simply looks at your score. A full application involves the full credit history and may return a slightly different result.

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Remortgaging with Bad Credit

It is possible to remortgage when you have bad credit. While your credit score and history do make things more complicated, there are many ways to present your situation to the lender to improve your position, and other factors can mitigate the negativity of a low credit score.

In some cases, the remortgaging can even be seen as a positive step by the mortgage lender, making the chance of a successful application more likely. Speaking to our specialist bad credit team at Clifton Private Finance can help. We have the experience you need to cut through the complexities and get heard.

Reasons to Remortgage with Bad Credit

Lenders are always more willing to help if they see financial responsibility. This means it helps a lot if your reasons for a remortgage fall in line with this viewpoint. Often the most successful applicants present a reason for their remortgage that accepts and understands their poor credit situation, for example:

• Remortgaging to avoid the SVR - By positioning your reason for a remortgage as wanting to keep the rate down, make sure the mortgage is manageable with your current income and outgoings, and avoid getting into further debt in the long term, you show that you are looking for a better financial outcome.
• Remortgaging to consolidate debt - If your other debts are causing you significant financial stress, with high interest rates and a cycle where you are struggling to meet your obligations each month, then offering a remortgage plan that involves clearing this existing debt and moving to an overall lower debt-to-income (DTI) ratio by paying one smaller mortgage repayment rather than multiple interest-heavy credit card and loan repayments will show good money management.
• Remortgaging for essential renovation work - As the mortgage is tied to the property for security, showing that you are going to use the money to keep the home in good order is another example of financial sense.

Other remortgage reasons that are typically considered perfectly reasonable may be looked at with less enthusiasm if you have bad credit. Examples are if you are looking to release funds to help a family member or to add an extension to the house.

Lender Considerations with Bad Credit Remortgages

When determining suitability for a bad credit remortgage, lenders will consider the following along with your base credit score and history:

• The severity of the bad credit issues - It is possible to have a low credit score because you’ve missed a couple of payments to a mobile phone provider and defaulted on a credit card when you were younger to find them chasing you today; or you may have a poor credit score because you’ve been bankrupt twice, missed 40% of your current mortgage payments, and be maxed out on six different credit cards. A specialist lender who is willing to look past the basic score will take this larger picture into account and is far more likely to be willing to lend when the problems are like the first example than when they’re the second.
• The timeline of your bad credit - Ongoing problems are considered more severe than either older issues and, in some cases, very recent ones. If you have consistently struggled with your credit responsibilities, you are more risk than someone who has worked on improving their score or another who has been doing well but just hit a bump in the road.
• Your income and job stability - Having a stable job with a solid income is a huge factor and can often get lenders to see beyond the credit score. Six months in a new job that pays well combined with a showing of working on your credit for the past few months will greatly boost the chance of getting a good remortgage when compared to a history of job hopping or less-stable self-employed positions.
• Your outgoings - Both essential outgoings, such as utility bills and food, and non-essential outgoings, such as entertainment and subscription services, will be considered against your income as part of the affordability check and stress test. Lenders are keen to see that you can meet the monthly repayments comfortably, even if the interest rate were to rise. The fewer non-essential outgoings and greater control over essential outgoings you have, the better your chance of a successful remortgage application. To learn more about affordability and stress tests, check out our detailed guide.

• Your existing debt - If you have poor credit, you are likely to have other debt. Your debt-to-income (DTI) ratio is one of the primary considerations for all lenders, as they have a responsibility not to put too much financial stress on you by increasing debt. If you intend to use the remortgage to consolidate other debts by paying them off with additional funds, this should be made clear so that your prospective future DTI is considered above your current one.
• The loan-to-value (LTV) of the remortgage - Loan-to-value is the ratio of the property value against the size of the mortgage. When the LTV is lower, the risk for the lender is reduced as repossessing and selling on the property will easily repay the remainder of the mortgage and cover any fees. If your remortgage comes later on in your mortgage lifetime then you will likely have a far greater amount of equity and thus be needing a lower LTV. This will increase your chance of getting the remortgage. If you are looking for extra money (for example, for debt consolidation) then the more equity you have the better as this will keep the LTV low even with the extra capital.
• The lender’s position in the market - There is a wide range of lenders in the UK mortgage marketplace and they don’t all have the same outlook. Matching your application to the right lender is one of the skills of the Clifton Private Finance mortgage team and will give you the best chance of getting approved.
• The type of property - While repossession is always a last resort, lenders will consider it from the very start, which is why property type and location matter. The easier it would be for them to sell your home quickly and recoup their losses, the better it is for them. For that reason, houses that are of non-standard construction, those in low-demand areas, and off-grid houses without full utilities are all harder to get remortgaged than traditional inner city homes.

The Effect of Bad Credit on Mortgage Rates

Getting a remortgage when you have bad credit will require some compromises. The lender will increase the remortgage rate to offset the additional risk and, if we’re honest, there’s little you can do about this until you improve your credit score.

By looking at your remortgage as part of an ongoing strategy to improve your financial position, you can make the most out of the opportunities presented.

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Improve Your Chances of a Remortgage with Clifton Private Finance

Partnering with Clifton Private Finance is your best chance for obtaining a flexible remortgage with low rates and favourable terms. Our mortgage team are experts in the field, working with your interests in focus throughout. If an immediate remortgage is unlikely, we will look comprehensively at your financial situation and help you develop a plan to ensure success as soon as possible. This will involve:

• Getting your credit report
• Working a strategy to lower or clear existing debts
• Advising on a repayment schedule
• Avoiding unnecessary mortgage and credit applications
• Searching the full UK marketplace for lenders that match your personal circumstances
• Providing access to specialist lenders who are understanding of your position
• Negotiating with lenders on your behalf to secure a deal
• Helping prepare paperwork
• Smoothing the application process
• Supporting you throughout the remortgage experience
• Helping develop a plan for the future

Just because you have poor credit and may have been rejected in the past, don’t assume it’s a ‘no’. The skills and experience of Clifton’s mortgage team are at your disposal! Give us a call today and make your remortgage wishes come true.

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