Remortgage with Bad Credit – Finding a good deal 

When you need to find a new mortgage deal, lenders will always check your credit rating. What happens if your credit score has worsened since you took out your mortgage, and what are your options? The Mortgage Brokerage explains how it works. 

Reasons to remortgage

People usually seek a new mortgage to save money or use their equity to release funds. An important time to remortgage is when you’re approaching the end of a fixed-rate deal. Once your fixed rate ends, you’ll move to the standard variable rate which can increase your monthly repayments considerably.

You can either remortgage with your current lender or compare the options from other mortgage companies. Any application will involve lenders checking your credit file. 

Can I remortgage with bad credit?

If you have run into financial problems since taking out your mortgage, you may find it harder to remortgage with a good deal. 

It will partly depend on the level of credit problems. A late payment usually won’t cause too much of an issue, but if you have been issued a County Court Judgement (CCJ) or entered into a Debt Management Plan, this can seriously affect your credit. If the issue is very recent, it will be a bigger challenge to find a lender. Even your current mortgage provider could decline your application. 

Some mortgage lenders will approve people with bad credit, but you can expect to pay higher interest rates. That means that the repayments on your mortgage will cost more each month.

How can I improve my chances of having my remortgage Application approved? 

A simple solution for a bad credit remortgage is taking out a joint mortgage with someone who has a good credit score. The lender will take a more measured view in this situation. 

If you can, it may be worth waiting before seeking a remortgage. Once the debt is two to three years in the past, it will be easier to find a lender to accept you. You can also work to improve credit reports over this time. 

The Loan-to-Value of the mortgage is also important. If the ratio between the property value and the size of the mortgage is under 75%, your credit rating is less important to a lender. 

Likewise, if your household income has increased considerably since you took out your mortgage, this will help. 

Being honest with the lender about the issue and how you have managed it can also be beneficial.

How can I improve my credit rating?

The priority when you run into any kind of debt is to repay the money owed as soon as possible. Once a debt is settled, it is easier to get financial products. 

The only way to increase your credit score is to prove that you can borrow responsibly. That means paying all bills on time and staying within your credit limits. 

You might decide to take out a special ‘bad credit credit card’ as these are designed to help you build up your score. By using them for small purchases and clearing the balance each month you can prove that you are on top of your borrowing.

Can remortgaging help me manage my debts?

If you have good equity in your home – i.e. your mortgage is considerably smaller than the value of the property – you may be able to use this to pay off the debts.

The challenge is whether you can find a lender to make it happen and that your new mortgage payments will be affordable. Whether you can get this kind of bad credit mortgage will depend on many factors, so it’s important to seek advice on your specific situation. 

How can a Mortgage Broker help? 

By looking at your credit file and exploring all the details of the situation, a mortgage broker can advise you on the best way forward. 

We can explore all the options and approach specialist lenders that are most likely to accept your application – some of which are only accessible to brokers. An important consideration when you have bad credit is to avoid applying for numerous loans in a short space of time, as this can further damage your rating. 

We will also support you through the mortgage application process and beyond. Contact us today for an introductory chat. The Mortgage Brokerage (UK) Ltd Limited is an appointed representative of Quilter Mortgage Planning Limited, which is authorised and regulated by the Financial Conduct Authority.

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