Bad Credit Remortgage
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Lee Gathercole and Neezam Romjon talk all about remortgaging with bad credit.
Can you remortgage with bad credit?
The good news is yes, most likely you can. As brokers, we will want to understand the reasons why you have bad credit. Is it the result of a life event, such as a separation or ill health? Or is it a situation of ongoing late payments or missed payments, which is more of a habitual problem?
Lenders always look at the risk to them and want to understand you better as a customer. So it does depend on your situation, but most of the time you can remortgage with bad credit.
Even if you can’t right now, we can help you plan ahead for when the time is right.
How can I remortgage with bad credit?
The short answer is by speaking to an independent mortgage broker. That’s a good place to start, especially in a bad credit situation.
It’s highly likely that typical high street lenders are unable to help you if your credit score is below par. But a mortgage broker will take a look at your credit report and assess the severity of the issues. We will be able to pinpoint lenders who are likely to take you on, most of which are only available through mortgage brokers.
You could waste lots of time trying to do this yourself – instead, an independent mortgage advisor will explain whether your goal is achievable and then look at special lenders that can help you.
Can you be declined a remortgage?
Yes, you can be declined any mortgage – and anyone can be declined. A lot of people are worried about this happening to them and what it would mean for applying again in future.
With a bit of preparation you can give yourself the best opportunity to get approved. Sit down with a broker that knows the lenders and what each one can and can’t do.
No one likes to be declined a mortgage, whether it’s a remortgage or a purchase, and it can cause a knock-on effect in future. By speaking to someone for guidance and advice you’ll give yourself a much better chance of getting approved, not declined.
Can you get a remortgage after bankruptcy, with a CCJ, IVA or a default?
The short answer is yes, you can. If it’s a bankruptcy, it will depend how long ago this was, and how much it was for. The same goes for a CCJ, IVA and default – how historic the blemishes are and the amount are very important.
A CCJ for a £300 parking ticket three years ago is a very different situation from a £5000 CCJ last month. Because there are so many variables in the type of blemish you have on your file, there’s no simple answer as to whether a lender can lend.
But don’t just assume that a bankruptcy, CCJ, IVA or default mean you definitely cannot get a mortgage. That’s not the case. There are plenty of lenders that accept all of these – a mortgage broker can step in and pinpoint them for you.
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Can you re-mortgage with a debt management plan?
We have clients who have either a current debt management plan (DMP) or that have been in one in the past. Either way, it can affect which lenders will accept you.
Generally, it’s down to a case of whether the DMP is satisfied or unsatisfied. If it’s fully paid, we will want to know how long ago that debt management plan was active. The details will stay on your credit report for six years. After that time lenders won’t even pick it up. Some of them won’t even ask the question. Other lenders want a certain period of time to have passed before they’ll lend to you.
It may be that if you’ve been in a debt management plan in the last year or two you may get turned away by some high street lenders.
We sometimes speak to people who have really improved their credit situation and are still in a debt management plan even though everything else has been resolved. They’re
sometimes surprised to find that it still goes against them. A lot of lenders will ask if you’re in a debt management plan as part of their standard questions and if the answer is yes, they might see you as still being in financial difficulty.
Generally, debt management plans are for people who can’t afford to pay their creditors – they can only afford to pay small amounts each month. Many high street lenders will want you to have paid your plan off, but if you’re nearing the end and only have, say, £500 left on it, you may get access to a more competitive lender by clearing that debt. Your broker will give you advice on that.
The other thing to be aware of with an active debt management plan is that many lenders will ask for proof that payments have been paid on time in the last 12 months. That might mean providing bank statements or a DMP statement to confirm you’ve kept up with payments.
What deals and rates are available if you are remortgaging with bad credit?
That’s the magic question – almost as popular as ‘how much can I borrow?’ When a client tells us they’ve got bad credit, they often automatically assume that they’ll be offered extortionate rates.
But generally, the specialist lenders do charge interest rates fairly, in that it relates to the severity of the credit issue. We could be looking at interest rates that are very close to what you’d expect on the high street – or you could be looking at rates of five or six per cent, depending on debt severity and how recent it is.
It’s difficult for mortgage brokers to say initially what exactly you’d expect in terms of a mortgage deal, but we can get you an initial agreement in principle to give you a clear idea of the mortgage product you would qualify for.
Something to note is that generally, bad credit mortgages are short-term. They’re there as a solution for the next two to five years until your credit history has improved and you can get a mortgage on the high street.
Are there many bad credit remortgage lenders?
There certainly are. A lot of lenders are flexible when it comes to credit and their approach to risk. They tend to fit into three groups:
- High street lenders which are the most risk-averse. They’re the ones looking for cleaner cases with low risk. They will usually not accept missed payments or defaults.
- Specialist lenders. This is the middle ground – typically regional building societies and lenders that take a more manual approach to assessing applications. If your credit issues stem from a life event, these lenders will sometimes take a more relaxed view.
- Adverse credit lenders. These will charge you higher rates and higher fees because they take on riskier cases – the more recent adverse credit, higher balance CCJs etc.
So there are lots of options. We’ll see if you fit option one and if not, we try option two, then obviously option three is the last resort. Depending on the situation, we may be able to find a lender in the first two categories rather than going straight to an adverse credit lender.
How do I improve my credit score or rating before remortgaging?
It could well be better to improve your credit score before remortgaging – it could mean that you qualify for a better interest rate. You should take any opportunity to improve your credit rating and that is something that we can assist with.
A typical example might be that you have a CCJ that’s coming up to three years old next month. It might be worth waiting one more month before seeking a remortgage, to qualify for a better mortgage product.
As mortgage advisors, we’ll help you understand what products you’ll be eligible for and what will be the best approach. Waiting a few months could mean a big difference in the mortgage product you’ll qualify for.
How do I apply for a remortgage with bad credit?
Because the typical high street banks want to take low risk customers, it is more difficult to apply direct when you have bad credit. A qualified mortgage broker has access to all the specialist lenders, so you can save a lot of time by not trying to do things yourself. We can very quickly tell you whether you’re eligible for remortgaging or not.
What other advice do you have on bad credit mortgages?
The only thing to add is that it’s important to think about why you’re looking to re-mortgage with bad credit. We speak to some clients who are already with a high street lender and are looking to remortgage, but their financial situation or credit score is worse today than it was when they took their initial mortgage out.
It’s important to look at why they want to do it. Is it to get a better rate? Are they looking to raise some additional funds? Are they separating and looking to buy someone out of the mortgage?
We don’t want to move you away from a competitive mortgage product to an adverse credit lender unless it’s really necessary. It could cost you a lot more over the next few years in interest and fees. So if you’re unsure whether you should be remortgaging or not, we’ll have a chat with you and provide impartial advice based on your specific situation.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.