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Remortgaging your home is possible even if you have a bad credit rating, although it is more difficult and may cost you more. Here we take a look at some things to consider if you are in this situation.
If you cannot remortgage your home in a way that is affordable, we can buy your home quickly to give you some financial breathing space.
What is remortgaging?
When you take out a mortgage you will be tied to it for a certain length of time, usually between two and five years. During this period the rate of interest you pay will be discounted but you will not be able to leave the deal without paying an early repayment charge. Once the deal period is over most people remortgage their homes, which means they find another deal with their current, or a new, provider.
Occasionally it may be worth remortgaging your home while you are still within your mortgage deal if you can get a much better interest rate elsewhere. Although you will need to balance this with the cost of an early repayment charge.
The impact of debt and arrears
When you apply for a new mortgage, as well as looking carefully at your income and expenditure, the provider will check your credit rating. This is an independent assessment of the likelihood you will pay back a loan. If you have recently missed payments on a debt or bill you will have a lower credit rating than someone who is up to date.
A mortgage lender will also look at your credit history. They can do this by looking at your credit report. This shows when you have missed payments, if you have been made insolvent or if there are any county court judgements against you for debt. These usually stay on your report for six years.
A mortgage provider will assess each missed payment or debt differently, for example:
- A missed utilities bill or credit card payment is less serious than a missed mortgage payment. In either case the quicker you are back on track the better. Even if you negotiate payment holidays this information may be included in your report.
- Debt management plans (DMP) and individual voluntary agreements (IVA) enable you to pay off all, or some, of what you owe in an affordable way. They allow you to pay less than the monthly amounts you initially agreed. But this will negatively impact your credit rating each month and mortgage lenders are reluctant to lend unless you have completed the DMP or IVA.
- If you owe someone money they can take you to court. If a county court judgement (CCJ) is ordered against you it will show on your report. The lower the amount the more lenient providers maybe, but ideally they’ll want to see you have paid off your debt in full.
- Bankruptcy is the most serious form of insolvency when you default on all your debts. It is very unlikely mortgage lenders will consider you with one on your record.
Improving your credit rating
This is one way to show mortgage providers you are safe to lend to, particularly if your debt problems were relatively minor. There are several ways to improve your credit rating:
- Check for mistakes or fraud on your file. A wrong address or someone misusing your identity could have an impact.
- Pay your bills on time and in full for as long as possible to rebuild your score.
- Seek free debt advice if you are in a difficult situation to avoid a CCJ.
- Pay off large debts. For example, if you are remortgaging with a large credit card debt, reducing it will help your case.
- Do not max out your credit card limits. Lenders prefer you to use less than the full amount you have available.
- Try not to move home too much. Lenders prefer you to have stayed in the same place for some time.
- Register to vote. If your name is not on the electoral roll, it is harder to get credit.
In the first instance you should talk to your current lender, they may be able to offer you a new mortgage deal. If they do not you will move onto their standard variable rate (SVR). This will be higher than your current interest rate, but may still better value than arranging a mortgage with a new provider when you have bad credit. You will need to work out carefully what the most cost effective option is.
If you decide to look for a new provider, a high street lender may take you on if you have improved your credit score. Even with a poor rating, there are specialists that will lend to you, but you may have to use a broker to access them.
As we’ve mentioned, the likelihood is you will have to pay a higher interest rate because you will be seen as a riskier investment. However if you own a good amount of equity in your home, less expensive deals will be available to you. As with all mortgages the lower the loan-to-value ratio the better the deal.
Working with us
In some cases, selling your home may be a better option than taking on a more expensive mortgage. This may also release some much needed money that will help you get on top of your debts.
Not only can we sell your house fast, but we also use our own cash funds which means the sale will never be part of an unpredictable chain which so often falls through. It also means we do not use estate agents, so you don’t have to pay their commission. What’s more, we instruct solicitors and cover their costs.
If you’d like to chat about how we could help you, please get in touch.