Here’s What You Need to Know
Remortgaging can be a smart financial move for many homeowners, allowing them to switch to a more favorable interest rate or release equity from their property. However, what if you have bad credit? Is remortgaging even possible in this situation? The short answer is yes, but the process may be more challenging and come with higher interest rates and fees. If you’re considering remortgaging with bad credit, it’s essential to understand the options available to you and the potential risks and benefits. In this article, we’ll explore what you need to know about remortgaging with bad credit, including the factors that lenders consider, the types of mortgages available, and some tips for improving your chances of success. So, whether you’re struggling with debt or simply looking to save money on your mortgage, read on to discover how you can make remortgaging work for you, even with bad credit.
Understanding Remortgaging and Bad Credit
Remortgaging is the process of switching your mortgage to a new lender or product. This could be to take advantage of a better interest rate, to release equity from your property, or to consolidate debts. If you have bad credit, remortgaging can be more challenging, but it’s not impossible. Bad credit can be caused by missed payments, defaults, CCJs, or bankruptcy, and it can stay on your credit report for up to six years. Lenders will use your credit score and report to assess your creditworthiness and decide whether to approve your remortgage application.
The Impact of Bad Credit on Remortgaging
Having bad credit can limit your options when it comes to remortgaging. Lenders may consider you a higher risk borrower, which means they may offer you less favorable interest rates or be more restrictive in their lending criteria. This could mean that you are limited to certain types of mortgages or that you may need a larger deposit to secure a remortgage. In some cases, lenders may decline your application altogether.
Factors Lenders Consider When Remortgaging with Bad Credit
When you apply for a remortgage with bad credit, lenders will take several factors into account. These include:
### Credit Score
Your credit score is a number that reflects your creditworthiness. It’s calculated based on your credit history and takes into account factors such as missed payments, defaults, and CCJs. The higher your credit score, the more likely you are to be approved for a remortgage and to be offered favorable interest rates.
### Affordability
Lenders will assess your income and outgoings to determine whether you can afford to make the mortgage repayments. They will want to see evidence of a stable income and may ask for proof of employment and regular outgoings, such as bills and living expenses.
### Loan-to-Value Ratio (LTV)
The LTV ratio is the amount of the loan compared to the value of the property. For example, if your property is worth £200,000, and you have a mortgage of £150,000, your LTV ratio would be 75%. Lenders will use the LTV ratio to assess the risk of lending to you. The higher the LTV ratio, the higher the risk, and the more restrictive the lending criteria may be.
Steps to Take Before Applying for a Remortgage with Bad Credit
If you’re thinking of remortgaging with bad credit, there are some steps you can take to improve your chances of success:
### Check Your Credit Report
Before applying for a remortgage, it’s important to check your credit report. This will give you an idea of your credit score and any issues that might be affecting it. You can get a free credit report from several credit reference agencies, such as Experian, Equifax, and TransUnion.
### Pay Off Outstanding Debts
Paying off any outstanding debts can help to improve your credit score and demonstrate to lenders that you are a responsible borrower. Focus on paying off debts with the highest interest rates first, such as credit cards and personal loans.
### Build Up Your Savings
Having a larger deposit can help to improve your chances of being approved for a remortgage. Lenders will view you as less of a risk if you have a larger stake in the property. Try to save as much as you can before applying for a remortgage.
Options for Remortgaging with Bad Credit
If you have bad credit, your options for remortgaging may be more limited, but there are still some options available:
### Specialist Bad Credit Mortgages
Some lenders specialize in offering mortgages to borrowers with bad credit. These mortgages may come with higher interest rates and fees, but they can be a way to access financing if you’ve been declined by other lenders. Specialist bad credit mortgages may also have more lenient lending criteria, which could make them easier to obtain.
### Guarantor Mortgages
A guarantor mortgage is where a family member or friend agrees to act as a guarantor for your mortgage. This means that if you can’t make the mortgage repayments, the guarantor will be responsible for paying them. Guarantor mortgages can be a way to access financing if you have bad credit, as the lender will view the guarantor’s creditworthiness when assessing your application.
### Secured Loans
A secured loan is where you borrow against the equity in your property. This can be a way to release cash from your property to pay off debts or make home improvements. Secured loans may be easier to obtain if you have bad credit, as the lender will view the loan as less risky, as it’s secured against the property.
Pros and Cons of Remortgaging with Bad Credit
Remortgaging with bad credit can have both advantages and disadvantages:
### Pros
– Access to Financing: Remortgaging can be a way to access financing if you’re struggling with debt or need to make home improvements.
– Lower Monthly Payments: Remortgaging to a more favorable interest rate can lower your monthly mortgage payments and free up cash for other expenses.
– Consistency: Remortgaging can provide stability and consistency in your monthly payments, as fixed-rate mortgages offer a set interest rate for a fixed period.
### Cons
– Higher Interest Rates: Remortgaging with bad credit can result in higher interest rates and fees, which can make the loan more expensive over time.
– Limited Options: Your options for remortgaging may be more limited if you have bad credit, which could mean that you’re unable to access the best deals.
– Risk of Repossession: If you’re unable to make the mortgage repayments, there is a risk that your property could be repossessed.
Tips for Improving Your Credit Score Before Remortgaging
Improving your credit score before applying for a remortgage can help to increase your chances of being approved and accessing more favorable interest rates. Here are some tips for improving your credit score:
### Check Your Credit Report Regularly
Check your credit report regularly to ensure that the information is accurate and up to date. If you notice any errors or issues, contact the credit reference agency to have them corrected.
### Register to Vote
Registering to vote can help to improve your credit score, as it confirms your identity and address.
### Pay Bills on Time
Paying bills on time can help to demonstrate that you’re a responsible borrower and improve your credit score.
Common Mistakes to Avoid When Remortgaging with Bad Credit
When remortgaging with bad credit, there are some common mistakes that you should avoid:
### Applying for Multiple Mortgages
Applying for multiple mortgages can harm your credit score and make it harder to obtain financing. Each application will leave a footprint on your credit report, which can be viewed negatively by lenders.
### Missing Payments
Missing payments can harm your credit score and make it harder to obtain financing. Ensure that you make all payments on time and in full.
### Exceeding Your Budget
Remortgaging can provide access to financing, but it’s important to ensure that you don’t exceed your budget. Make sure that you can afford the monthly repayments before signing up for a remortgage.
Working with a Specialist Mortgage Broker
If you’re considering remortgaging with bad credit, working with a specialist mortgage broker can help to improve your chances of success. A specialist broker will have access to lenders that offer mortgages to borrowers with bad credit and can help to guide you through the application process. They can also help you to find the best deal for your circumstances and provide advice on improving your credit score.
Conclusion
Remortgaging with bad credit can be more challenging, but it’s not impossible. By understanding the factors that lenders consider, taking steps to improve your credit score, and working with a specialist mortgage broker, you can make remortgaging work for you. Whether you’re looking to save money on your mortgage or release equity from your property, remortgaging can be a smart financial move. Just remember to consider the risks and benefits carefully before making a decision.