How Just Mortgage Brokers Can Help You
If you are a homeowner and need to raise cash for something – for example, a new car, a holiday or home renovations – a remortgage is an excellent method of releasing capital in an existing property. You can often also obtain a better deal at the same time, making it a win-win situation.
Why Might Lenders Be Unwilling to Remortgage with Bad Credit?
If you have suffered financial problems since your initial mortgage was obtained, you might find that certain doors are now closed to you, and that might include the door to your current lender. As your circumstances have changed, the fact they gave you your initial mortgage is no guarantee they will agree to offer a remortgage deal. Even if they do, the terms they offer might be less favourable than your current deal.
Having an adverse credit score can be an obstacle and present a real challenge to be overcome. If you are in this position take heart, as a bad credit score does not necessarily mean that you’ll be unable to remortgage your property. There are likely to be options available to you.
To help you understand the situation, let’s first take a look at why lenders might be unwilling to offer you a remortgage deal.
Most high street lenders will look upon bad credit remortgage applications in the same way they’d consider, and probably turn down, initial mortgage applications from people with bad credit. From a financial standpoint, a history of bad credit or an existing bad credit score is indicative of poor money management skills, and this makes those applicants a high risk for lenders.
However, as with most things involving finance, there are a number of truths and myths which can become blurred. The biggest misconception is that the answer to a bad credit remortgage application will always be a resounding ‘no’. In truth, most homeowners will be able to obtain a remortgage deal, even with a number of credit issues on their record, such as:
- Missed or Late Payment
- Debt Management Plan
- Discharged Bankruptcy
- Defaults (a series of missed payments)
- County Court Judgments (CCJs)
- Individual Voluntary Arrangement (IVA)
Every case is judged upon its own individual merits, which means we can’t guarantee to remortgage with bad credit will be possible. However, having said that, while each adverse credit event represents a black mark on a person’s credit record and has an impact on their credit score, none of them should be considered an immovable barrier to obtaining a remortgage deal.
How does a credit score work?
Your credit score is the result of an assessment of financial and other information gathered about you by Experian, Equifax and Callcredit – the three main credit reference agencies that operate in the UK. They get their information from two main sources: other lending companies that have agreed to share data about their customers, and public records.
Lending companies share information including how much a customer is in debt to them, how promptly they pay their bills, and if they pay in full, and whether their credit cards are maxed out.
The information gathered from public records includes details of adverse credit events such as CCJs, bankruptcies and IVAs, plus information held on the electoral roll.
High street lenders interpret this data in line with their own criteria and arrive at a credit score, based on which they will say ‘yes’ or ‘no’ to a remortgage application. If the decision isn’t clear-cut, they might say ‘yes’, but charge higher fees and/or a higher rate of interest. They do this for two reasons; to offset what they see as an additional risk and because they know they can, as borrowers with a poor credit rating have fewer options than those with an exemplary record.
How Do I Improve My Credit Score?
Adverse credit events stay on a person’s record for six years, after which they are removed. In the majority of cases, even if the six-year period isn’t up yet, the further in the past something is, the less impact it will have on your credit score and therefore on a lender’s decision. However, even after they have ‘dropped off’ the record if you are asked about certain types of adverse credit events – such as a previous bankruptcy or property repossession – you must declare it.
While there are options available to those with an adverse credit score looking to remortgage a property, it is always recommended that you look to improve your credit score wherever possible.
There are some positive steps you can take that will improve your situation and encourage lenders to look more favourably on your application. Arguably the most important thing you can do is to improve your credit score.
Improving your credit score is a continuous process, not something that can be achieved overnight – you must persevere with it to get results. However, if you are taking the right steps, you will soon begin to see some small improvements.
Having a healthy credit score will make a huge difference to your future financial dealings. We always recommend speaking to a qualified adviser with regard to putting together a plan to improve your credit score; however, there are some immediate actions you can take to put your credit rating back on track. These include:
- Get a copy of your credit report from each of the UK’s three credit reference agencies – Experian, Equifax and Callcredit – and check that the details they hold are correct (they may hold different details, so do get your report from all three, not just one)
- Regularly update the personal details held on your credit report
- Make sure you are registered on the electoral roll
- Keep track of your credit card balances; ideally try to always pay more than the minimum to drive the balance down, and take care not to go over your agreed credit limit
- Use your calendar to make sure you pay your bills on time and manage your monthly income
- Cancel all lines of credit that are not in use, such as store cards or ‘just in case’ credit cards (but see below for an alternative option)
- Build up a positive credit history; for example, if you have a credit card that you don’t use, rather than cancelling it, use it at least once a month, perhaps for buying petrol or groceries – but make sure you pay it off in full every time, don’t build up additional debt
- Resist the temptation to take out payday loans, as they are considered to be a red flag showing that you cannot manage your finances month to month
- Moving forward, leave any good debt on your report
For more suggestions as to how you can repair your credit rating, check out our simple tips page.
Additional actions to take
Something else to bear in mind if any missed payments show on your credit record is whether they were due to events outside of your control. If, for example, your employer went out of business, leaving you financially stranded, then you should contact each credit reference agency and explain what happened. They have the ability to add a note of correction to your credit file explaining the circumstances, which may well mitigate the effect of the default on future credit decisions.
There are other things you can do that, while they do not in themselves boost your credit rating, will help you to avoid falling into future difficulties, and perhaps to pay things off faster. For example, take on some freelance work or a second job, or look for a job that pays more or is closer to home (so you save money on commuting). Make sure you aren’t paying more than you need to for things like your mobile phone, cable TV, fuel and broadband, and if you have a gym membership but can’t remember the last time you were there, cancel it. The more you have left after paying your bills, the better your chances of passing the affordability test.
What is the affordability test?
Every application for a mortgage or a remortgage is subject to an affordability assessment, and this is the case no matter what the credit status of the applicant might be. Potential lenders will look at income versus expenditure, taking everything into account, to arrive at a debt-to-income ratio. Since June 2014 the Financial Conduct Authority’s recommendation is that the debt-to-income ratio should be no higher than 45% for an offer of a mortgage or remortgage to be made.
If you want to do a quick, rough calculation to see where you stand, then:
- make a list of all income you will receive over the year and divide by 12 (if all your income comes in monthly, just add it up)
- add up all your monthly bills – mortgage, credit card, etc. – then list all your other bills, whether quarterly, annual or whatever;
add the monthly cost of these additional bills to your original total
- divide your monthly expenses by your monthly income and multiply the answer by 100, which will give you your debt-to-income ratio, expressed as a percentage
The lower the number, the better. You can lower your debt-to-income ratio by either reducing your debt or increasing your income.
What if you can't wait for your credit score to improve over time?
For those in need of a more immediate remortgaging solution, there are specialist lenders who work with applicants with low credit scores, offering deals that cannot be obtained from high street lenders. So if your need is urgent and you are asking yourself, ‘Can I remortgage with bad credit?’ the answer is ‘yes’.
Get in touch today for free initial advice and no-obligation quotes from our team of experienced bad credit brokers.
How can we help?
Just Mortgage Brokers have experience of working with property owners at all levels, from those who are relatively new homeowners to highly experienced landlords with extensive property portfolios.
We also have unlimited access to the UK mortgage market and many years of experience of working with a network of bad credit lenders across the country. That means we are not restricted to products from any one particular lender but can work with a diverse range of specialist lenders to secure the remortgage deal you require. This combination of impartiality and unlimited market access gives us the very best chance of obtaining a competitively priced bad credit remortgage.
We know exactly where to turn to find a mortgage to suit the particular needs of each and every client, regardless of their credit history. If you have a history of bad credit and are looking to remortgage a property, speak to Just Mortgage Brokers today to get the right deal for you.