Having bad credit does not necessarily mean that you will be turned away by lenders. However, you might have to persevere as remortgaging can be more difficult under these circumstances than obtaining a standard mortgage. You should still have options, and our expert team can explore the market to find suitable deals for your particular circumstances. The following outlines some key points and where to start if you have adverse credit.
Why remortgage with bad credit?
If you have bad credit, there are various reasons why you might want to remortgage, including:
- consolidating debt
- purchasing a buy to let
- renovating your main residence or buy to let
- buying a vehicle
- paying for a major event.
What constitutes bad credit?
Adverse credit history happens as a result of missed or late payments or negotiated agreements reported to a credit agency. Situations that contribute to a history of adverse credit include:
- mortgage arrears
- late payments
- Individual Voluntary Arrangement (IVA)
- County Court Judgement (CCJ)
- Debt Management Plans (DMP)
Each adverse event has a different impact on your credit score and credit report. The seriousness of the situation will depend on the nature of the issue, the sums involved, at what time they were registered and how much equity is in the property. Adverse credit history matters to lenders because borrowers who have had historical credit problems are statistically more likely to have them in the future. If you are attempting to remortgage with poor credit, lenders may be unwilling to give you a competitive deal and may only accept you on a subprime rate.
However, depending on the circumstances of your individual situation there may be more options available than you have been led to believe. The Mortgage Hut has links to specialist bad credit remortgage lenders who offer bespoke deals for customers with adverse credit circumstances. We will work with you to exhaustively search the market and find the best deal for your particular situation.
If you have a low credit score
Credit reference agency scores and lender scores are different animals. Each agency and each lender will determine your credit score by examining numerous circumstances from your credit history, taken with other factors including age, income and loan to value (LTV). If you have a poor credit history, it is likely that most lenders will give you a poor credit score, so you may be better off with a specialised lender. Many such lenders now exist nowadays and will take a flexible view of borrowers with colourful or sparse credit histories or those with no credit history at all.
Using a broker can help to mitigate any further damage to your credit file through needless or fruitless credit searches which can adversely affect your score. As a reputable whole-of-market broker, we will use our expertise to assess your situation before taking action, so you should only experience one credit search from the most appropriate lender.
What if I have mortgage arrears?
Remortgaging with mortgage arrears can be tricky, particularly if there are other poor credit issues. Lenders consider mortgage arrears to be one of the most serious forms of late or missed payment. Your creditworthiness is called into question if you have failed to pay your mortgage, particularly if it has been in arrears for over a month.
Having said this, some bad credit remortgage lenders will be flexible if the events are historic and you can reasonably explain why they were missed, provided that the previous issues have been resolved.
When making a decision, lenders will also consider your loan-to-value (LTV); the ratio between the size of the loan requested and the value of the property, in addition to your loan-to-income (LTI) ratio. Even if your arrears are current, some lenders may be willing to make an offer if the circumstances are right.
Remortgaging with defaults
Defaults on your credit file are common reasons for declining a mortgage application. However, specialist default mortgages are now widely available. Various influencing factors exist. Lenders will assess:
- your LTV
- your deposit and LTI
- the number of defaults
- whether defaults are unsatisfied or satisfied
- when the defaults took place
- type and seriousness of the default.
Despite what some people think, it isn’t disastrous if a default is not yet satisfied. Lenders are generally more concerned with when a default was registered.
Remortgaging with a CCJ
Many applicants fear that they have little chance of being accepted for a remortgage with a CCJ. However, a growing number of bad credit remortgage lenders deal with this situation. While all lenders have varying criteria, the date of the CCJ date is the most significant influencing factor; if it happened two or more years ago, your chances of being accepted are far greater than if it occurred in the last 12 months. Other criteria include:
- the amount the CCJ was for
- your total number of CCJs
- if it was satisfied or unsatisfied
- affordability of the new mortgage
The type of mortgage is also significant; in general terms, the criteria will be more flexible if you hope to remortgage with a CCJ than if you were making an application for a buy to let mortgage or as a first time buyer.
Remortgaging with an IVA
If you have a current IVA or had one previously, several lenders may be willing to consider your mortgage application, although the criteria are different for existing IVAs and those in the past. When it comes to remortgaging, having an IVA can inhibit your options. However, lenders are generally a little more flexible in these circumstances than if you’re making an application for a new mortgage. Depending on your individual circumstances, you can remortgage while you’re in an IVA, following your IVA, or if you need a new mortgage to pay off an IVA.
To appeal to lenders who consider IVA remortgages, you will usually need to have made repayments in a satisfactory manner during the time you have had the IVA. Lenders usually require higher levels of equity to counteract perceived risk, the more recently an IVA began. Some lenders ask for evidence of the previous 12-24 months’ payments.
Generally speaking, the more recent your IVA and the greater your number of credit problems, the higher the percentage of equity necessary to counteract the lender’s perception of risk.
IVAs are often accompanied by associated credit problems which may be precursors to the IVA arrangement, such as CCJs, defaults and debt management plans. Lenders considering mortgages for those with IVAs ought to be understanding, but their attitude depends on the date of the occurrence and the frequency of repayments. The amount of deposit and interest rate may be higher, depending on your individual circumstances.
If you have an IVA, speak to our expert team for advice on how to deal with this situation.
Secured loans to repay an IVA
If you can’t get a remortgage due to your IVA, you still have some options. Provided that you have adequate equity, several lenders will offer a second charge mortgage to release funds to pay off the IVA, even if specialist mortgage lenders have declined you. In addition, secured loan lenders may be more generous when it comes to loan amounts.
Remortgaging on a DMP
If you are on a debt management plan (DMP), remortgaging to pay it off can be attractive. However, you need to consider whether this is the right move for you.
You should be able to remortgage following the completion of a debt management plan, or to borrow more money or switch mortgage while you’re in a debt management plan, provided that you fulfil the relevant criteria.
With a DMP, you need to figure out what proportion of your home you currently own. In the case of remortgaging, the allowed LTV percentage is generally slightly higher (around 80-85 per cent maximum), but if your existing LTV is at the minimum requirements, you cannot release any equity through a remortgage.
Contrast this with a mortgage at 50 per cent, for example, where you should be able to increase the mortgage to around 80 per cent and help pay off your debt with the remaining money.
Affordability is still a consideration and owning a major portion of your home may not necessarily mean that a lender will accept your application to remortgage. The size of the debt is also important. Generally speaking, you will get better conditions if you have finished a DMP than if you currently have one. It is important to use specialists such as The Mortgage Hut to find an appropriate lender, as some mainstream lenders will not look at you if you have had a DMP during the last six years.
Needless to say, you must go through numerous assessments of affordability and any instances of adverse credit history will be taken into account.
Remortgage if you have been bankrupt
Many lenders will automatically decline anyone who has entered bankruptcy. However, some specialist lenders will issue mortgages for those in this category. Lenders exist who have experience of mortgages with:
- bankruptcy discharge from up to six years ago
- a history of repossession and bankruptcy
- bankruptcy discharge plus a large deposit
- bankruptcy discharge with just 10-15 per cent deposit
- bankruptcy with just 5 per cent deposit
- buy-to-let following bankruptcy
- bankruptcy annulment plus second charges.
Remortgage if you’ve been repossessed
If you are wondering whether you can get a mortgage after repossession, the answer is yes. Many of those who have recovered from the credit crunch of 2008-9 and saved enough to buy again fall into this category.
You need to know where to look and you must fulfil the lender's criteria including an adequate deposit and having demonstrated financial responsibility since repossession. Specialist bad credit remortgage lenders can offer competitive rates; ask our expert advisers for help if you are in this situation.
Prepare for bad credit remortgaging
Below are some suggestions as to how to prepare for remortgaging with bad debt.
- Don’t visit your bank
As the mortgage market is competitive, bank advisers are schooled to get commitment from enquirers as soon as possible. As such, they are encouraged to credit score their customers. With a clean credit history, this isn’t a problem, but it is not ideal if you have poor credit history as the credit search will appear on your file. We can work on your behalf to find a lender who will use a 'soft' search in order to reach a decision in principle, with no adverse effect on your credit file.
- Look up your credit reports
To find out what you are working with, look up Experian, UK Credit Ratings and Check My File. Each will have different information. Although this search takes time, it is a worthwhile investment and may identify easily corrected errors.
- Establish your LTV
To determine your loan to value (LTV), calculate the property value and work out your deposit/equity. This figure matters because many lenders stipulate that the higher the LTV, the better the required credit rating will be.
- Improve your credit score
If you want to remortgage with an adverse credit rating, you can improve your credit score by obtaining an adverse-specific credit card and repaying in full every month. This proves that you can borrow within your means and you will find that your score improves over time.
There are two card choices available. The first is a standard credit card for those with adverse credit, while the second suits those who have had standard cards declined and require a guaranteed-acceptance card. Many people choose the Aqua card first, then opt for CashPlus, should their application be declined.
We are here to help and as a whole-of-market broker, The Mortgage Hut can quickly source deals across many specialist lenders to get just the right arrangement for your individual circumstances. Please contact our expert team for advice and to find out more.