Can you remortgage your home or buy to let property if you have bad credit?
If you’re thinking of changing your current mortgage, it’s usually because your existing deal is ending. You’ll obviously want to make sure that you get the best deal possible, ideally better than the one you currently have. However, if you’ve got bad credit history that may not be as straightforward as you’d hoped. The best way to ensure that you find the best deal is to do your research and understand exactly what the obstacles might be.
So, what do you need to know if you’re thinking of remortgaging with bad credit?
What can cause bad credit?
Before we take a closer look at remortgaging specifically, here’s a quick overview of why you may have bad credit.
A poor credit history is shown on your credit file, which is used by lenders when deciding whether or not to give you a remortgage deal. While it is not the only consideration used by lenders, your past financial behaviour as shown in your credit file, does play a large part in determining how successful your application is.
This is not a static document. In other words, your credit history could have changed significantly since you were accepted for your current mortgage, making it more difficult to find a remortgage deal.
The factors that can lead to you having a poor credit history include bankruptcy, County Court Judgments (CCJs) and Individual Voluntary Arrangements (IVAs), as well as late or missed payments on credit cards or mortgages. You can obtain a copy of your credit report via providers such as ClearScore, and this can help you to determine whether there may be any problems when you come to approach a mortgage lender.
Why might someone with bad credit want to remortgage?
The most common reason for remortgaging is to save money monthly by moving to a lower interest rate. When you first get a mortgage, you can often take advantage of an introductory deal that last for a short period, usually one to three years. Once this period has lapsed it makes sense to think about finding a new mortgage, with a new introductory deal. If you have had poor credit in the past, reducing overheads such as mortgage repayments could play a key part in getting your financial affairs into check.
You might also want to get a more flexible deal. That might be because you now want the option to overpay your mortgage. Alternatively, you might have accrued savings that you now want to use to reduce the amount of your repayments by switching to an offset mortgage.
Finally, remortgaging can be used to raise a lump sum either to pay towards a large expense such as home improvements, property investment or to consolidate debts. If you are thinking of remortgaging to consolidate debts, it is particularly important that you take professional advice. This is because you will, in many cases be transferring unsecured debts such a credit card arrears into a secured debt, and this shouldn’t be done without really considering the full financial implications.
Can you remortgage with bad credit?
The short answer is ‘yes’. The longer answer is ‘yes, but it may not be as simple a process as it is for someone with a better credit history’.
Let’s go back to what lenders are taking into account when they make a decision about whether or not to lend. A lender’s main concern is to reduce the risk of a borrower defaulting on their mortgage. While your mortgage is secured against your home, which always gives the lender the option of repossession, this is very much a last resort.
Rather a lender wants to lend to people who will repay their mortgage on time, with no missed payments. A simple way to determine how good a risk a borrower is, is to look at their previous behaviour. As we’ve seen, this behaviour is represented in your credit file.
Bad credit and missed payments indicate to a lender that you may be a bad risk, i.e. you may be more likely to default, and therefore they may think twice before considering you for a remortgage.
So, does this mean you are stuck with your old deal?
Not necessarily. While your credit history is certainly a significant indicator of your ability to repay your remortgage, it is not the only thing a lender will look at. You may for example have high earnings and low outgoings, meaning that you will easily be able to afford repayments now and in the future, despite your bad credit in the past.
Alternatively, a lender may consider you for a remortgage despite your bad credit history but not give you access to the best deals that would be available to a borrower with healthier credit. For buy to let mortgages this is further skewed by the rental yield, as the ability of the rental property to generate income to pay back the mortgage is a key lending criteria.
How a mortgage broker can help
Mortgage brokers deal with hundreds of mortgages and remortgage applications every week. A whole-of-market independent mortgage broker who specialises in getting clients a remortgage with bad credit, such as the bad credit remortgage experts at Simply Adverse, work with a wide range of different lenders on a day-by-day basis. This gives them a unique insight into the criteria that each lenders use when assessing a bad credit remortgage application for home loans and buy to let mortgages.
And just as your credit file changes over time, so does the criteria used by lenders. So not only does using a specialist broker give you the benefit of their experience, it also gives you access to their knowledge about the most up-to-date criteria that lenders are using.
But how does this help you?
Well, it means that brokers can match your particular set of circumstances with the lender who is most likely to give you the most suitable remortgage deal. FCA regulated mortgage brokers are obliged by law to act in your best interests, so you can be sure that the deal that they find you will work for you.
Furthermore, using a broker can also relieve much of the stress associated with making a remortgage application, as they will do much of the legwork for you.
Finally, if you use a broker who also works with second charge mortgage lenders, like Simply Adverse, then they can assess which option suits your circumstances. This is especially important if you are looking to raise extra funds, as it can often be the best option for individuals with a poor credit score.
Switching your mortgage can be a great way to reduce your outgoings, or raise capital, and having bad credit need not prevent you from taking advantage of that.