Is Remortgaging with Bad Credit Possible?

Bad credit doesn’t necessarily close all doors to remortgaging. It is possible to remortgage even when your credit history is less than ideal. 

But, it’s crucial to know that the journey might not be as smooth as you’d want it to be. Bad credit remortgages can be hard to secure and you may have to face higher rates than usual.

What Do Lenders Look for?

Lenders often have strict criteria when it comes to granting remortgages. They may be quick to turn down applications even due to minor credit problems. 

This often leads to suitable applicants being declined or deemed ineligible for remortgaging. But, if you already have a mortgage on a property, it can be a silver lining. 

Having an existing property lowers the risk for the lender as they have an asset to hold against the loan. This makes it comparatively easier to get approval for a remortgage, despite having bad credit.

Can Home Equity Make a Difference?

The amount of equity you have in your home can be a game-changer when you’re looking to remortgage. 

Home equity can enhance your borrowing capacity, but it doesn’t guarantee approval. If you’re applying with a lender who’s not a good fit for your circumstances, even a high level of equity may not help.

On the flip side, equity can be utilised to consolidate your debts. If you’ve accumulated debt, remortgaging can provide an opportunity to release some of your home equity to repay these debts. 

Clearing these outstanding debts can also lead to an improved credit score. This can make you a more favourable candidate for lenders.

What is Considered a Bad Credit Score?

Credit scores are numerical representations of an individual’s creditworthiness, based on their credit history. 

They’re calculated using various factors such as payment history, credit utilisation, length of credit history, types of credit, and recent credit applications. 

Different credit reference agencies use distinct scoring models and scales, leading to variance in what’s considered a “bad” credit score.

To get an idea, here’s a table that shows the different credit score ranges in the UK:

Credit StatusExperianEquifaxTransUnion
Excellent961-999800 – 850781 – 850
Good881-960670 – 799721 – 850
Fair721-880580 – 669661 – 770
Poor300 – 720300 – 579300 – 660
Credit Score Ranges in the UK 2023. Source: Experian, Equifax, and TransUnion websites.

Why Does the Reason for Remortgaging Matter?

The reason for remortgaging matters as it helps lenders understand how you plan to use the funds. Therefore, it’s important to clearly communicate your intentions and how they align with your financial plans.

Here are some frequent reasons for remortgaging:

  • To secure a better mortgage rate
  • Consolidation of debts
  • Raising funds for a major purchase or expense (for instance, purchasing a car or planning a holiday)
  • To release equity from the property (for home improvements or investment)
  • Relationship breakdown (to buy out an ex-partner’s share)
  • Let to buy (renting out your current home to buy a new home for yourself)

Each one of these purposes carries its own risks and rewards. Lenders use this information to assess the risk associated with the loan and to decide whether they are comfortable granting the remortgage.

How Does Adverse Credit History Affect Remortgaging?

Your credit history plays a pivotal role in the remortgaging process. Different types of credit issues carry different weights, with severe credit problems causing more difficulties. 

Here’s a brief overview of the types of credit issues and how they can affect your remortgaging:

Type of Credit IssueSeverityImpact on Remortgaging
Late PaymentsLow to moderateThis might cause lenders to question your ability to make timely payments, making remortgaging a bit challenging.
Debt Management PlansModerateShows that you’ve had trouble with debts, but also that you’re actively trying to manage them, with mixed impact on remortgaging.
DefaultsHighThese can significantly impact your ability to remortgage as they indicate a failure to meet previous credit agreements.
County Court Judgements (CCJs)HighThis indicates serious issues with managing credit and may make many lenders hesitant to offer a remortgage deal.
Individual Voluntary Arrangements (IVA)Very HighThis signals severe debt problems and can limit your remortgaging options significantly.
BankruptcyVery HighSeverely impacts creditworthiness, often leading to outright rejection by many lenders.
RepossessionVery HighSuggests a major failure in managing a previous mortgage, making remortgaging very difficult.

In this article, we’ll discuss these credit issues. If you’d like to jump straight to that section, click here.

Note: Credit issues don’t always lead to a declined remortgage application. Lenders vary in approach and may consider factors like income, employment, and home equity. 

For a clear understanding of your situation and potential options, it’s best to consult with a good broker who specialises in bad credit mortgages. They can provide personalised advice, help you understand the available options and guide you through the application process.

Factors Mortgage Lenders Assess

Beyond credit history, mortgage lenders scrutinise several other factors when evaluating your remortgage application. Here’s a brief overview of these key factors:

  • Income – Lenders want to ensure you have a reliable income to meet your monthly payments. This includes salary, bonuses, overtime, and income from any investments or pensions.
  • Outgoings – Apart from your income, lenders also look at your outgoings such as bills, loans, credit card payments, and general living costs. They analyse these to ascertain whether you can comfortably afford the mortgage payments.
  • Employment status – Being employed full-time on a permanent contract often provides reassurance to lenders. If you’re self-employed or on a temporary contract, you might have to give additional documents to prove your income stability.
  • Loan-to-value ratio (LTV) – This is the proportion of the property’s value you’re looking to borrow. A lower LTV usually means more equity, which can improve your chances of approval.
Infographic illustrating the key factors that mortgage lenders evaluate when assessing a remortgage application

Pros and Cons of Remortgaging with Bad Credit

Whether remortgaging with bad credit is the right move for you depends greatly on your circumstances. To help you weigh your options, we’ve listed some potential benefits and drawbacks that come with this decision:

Pros of Remortgaging with Bad Credit:
– Potential for better interest rates if credit score has improved since original mortgage.
– Opportunity to consolidate debts, reducing monthly payments.
– Access to home equity built up over time.

Cons of Remortgaging with Bad Credit:
– Possibility of higher interest rates if credit hasn’t improved.
– Additional costs such as valuation and legal fees.
– Risk of accumulating more debt if home equity is mismanaged.

Always remember to align these considerations with your own financial situation. A good mortgage broker can provide tailored advice to guide your decision-making process.

Do Dates of Credit Issues and Overall Health of Finances Matter?

Yes. If your credit issues are recent, lenders may see this as a risk. 

Conversely, if these issues happened over 6 years ago and your financial behaviour has improved since then, lenders might be more willing to consider your application.

The overall health of your finances is a big-picture view, which includes your current savings, investments, debt levels, and how you manage your money overall. 

Lenders want to see evidence of financial responsibility and stability. Therefore, keeping your finances in good shape could boost your remortgage prospects, despite a history of bad credit.

Can I Remortgage Without a Credit Check?

In some rare cases, you may remortgage without a credit check, but this usually comes with specific conditions. 

It’s more likely to occur if you’re sticking with your current lender, especially if you’ve proven yourself reliable over time. 

But, each lender’s policies differ and some may choose to perform a credit check regardless of your history with them. 

If you’re thinking of switching lenders, expect a credit check as part of the process. Ultimately, the situation depends largely on each lender’s risk assessment and your own financial circumstances. 

What Happens When I Remortgage with Various Credit Issues Involved?

Remortgaging with credit issues is possible, but it’s often more complex. The type and severity of the credit problem, the amount of equity in your home, and the lender’s policies can all impact the process. 

Here’s a closer look at how specific credit issues might influence your remortgaging options:

Remortgaging with Mortgage Arrears

The Severity of Credit Issue: Low to moderate

Can you Remortgage with Mortgage Arrears?

  • Yes, you can remortgage with mortgage arrears, although it can be a challenging process.

Why is it Challenging?

  • Having mortgage arrears implies that you’ve had difficulty making your mortgage payments in the past, which may discourage lenders. They often view arrears as a sign of financial stress. This could raise concerns about your ability to meet future repayments.

How to Approach It?

  • The best approach is to present clear evidence of improved financial health. Outline the reasons for the arrears, whether they were due to unexpected life events or financial mishaps, and explain how these issues have been resolved. 
  • Maintain a consistent record of current repayments, demonstrating that you can manage your mortgage responsibly.

Remortgaging with a Debt Management Plan (DMP)

The Severity of Credit Issue: Moderate

Can you remortgage with a DMP?

  • Yes, you can remortgage with a DMP. But it may require some additional effort on your part.

Why is it Challenging?

  • A DMP, while a responsible step, does indicate past financial struggles. Lenders weigh this against other factors, like your home equity and how you’ve managed your DMP.

How to Approach It?

  • Detail how you’ve been responsibly handling your DMP. If you’ve consistently made payments and shown financial prudence, highlight this.

Remortgaging with Defaults

The Severity of Credit Issue: High

Can you remortgage with a Default?

  • Remortgaging with a history of defaults is possible, though it brings its own set of complexities.

Why is it Challenging?

  • Defaults are a strong indicator of financial instability, which makes lenders wary. They might be concerned about the risk of potential defaults in the future, which can make them hesitant to approve your remortgage application.

How to Approach It?

  • Be prepared to provide extensive details about your defaults, such as their nature, number, and when they occurred. Highlight any improvements in your financial situation since the defaults and show evidence of sound financial management.

Remortgaging with a CCJ

The Severity of Credit Issue: High

Can You Remortgage with a CCJ?

  • It is possible, but it requires careful consideration and strategy.

Why is it Challenging?

  • A CCJ sends a strong signal about credit issues. Lenders often take a step back and re-evaluate the risks associated with lending.

How to Approach It?

  • If the CCJ has been settled and you’ve shown responsible financial behaviour since its issuance, ensure these are highlighted.

Remortgaging with an Individual Voluntary Arrangement (IVA)

The Severity of Credit Issue: Very High

Can You Remortgage with an IVA?

  • Yes, remortgaging with an IVA is feasible, though the conditions may vary among lenders.

Why is it Challenging?

  • An IVA indicates a formal agreement to deal with unpaid debts, implying significant past financial troubles, and making lenders wary.

How to Approach It?

  • Showcase a consistent record of IVA payments and offer a thorough explanation of the circumstances leading to the IVA. Demonstrating financial stability after IVA, and seeking advice from a specialist broker, can be advantageous.

Remortgaging after Bankruptcy

The Severity of Credit Issue: Very High

Can You Remortgage After Bankruptcy?

  • Yes, remortgaging is possible after bankruptcy, but it often requires time and careful financial management.

Why is it Challenging?

  • Bankruptcy is a severe credit event, making lenders cautious. The financial risk associated with past bankruptcy can lead lenders to be hesitant about granting a remortgage.

How to Approach It?

  • The best way to address this is to maintain a clean credit record following the bankruptcy. Showcasing a consistent track record of paying bills on time, low credit utilisation, and responsible financial behaviour can enhance your credibility.
An infographic that categorises and explains the impact of various credit issues like Mortgage Arrears, Debt Management Plan, Defaults, CCJ, IVA, and Bankruptcy on remortgaging.

How Can I Get the Best Bad Credit Remortgage Rates?

Securing the most favourable remortgage rates with a less favourable credit history isn’t just about chance; it’s a matter of a well-structured approach.

Here are the steps that can guide you towards getting the best remortgage rates:

1. Checking Credit Reports

    Lenders use your credit report to decide on your risk level. You can get your report from three places in the UK – Experian, Equifax, and TransUnion

    It’s important to make sure everything on there is correct. If something is wrong, report it immediately. As it could hurt your application.

    2. Consult a Bad Credit Expert

      Professional brokers who specialise in bad credit can provide valuable insights tailored to your unique financial circumstances. 

      They can help connect you with lenders who are more understanding and accommodating towards applicants with adverse credit histories.

      3. Assess Your Home Equity Accurately

        Knowing your home’s equity and LTV can make a significant difference in your remortgage process. 

        Start by estimating your property’s current market value – an estate agent can help. Then, calculate your home equity and LTV. 

        In this context, a higher home equity (or a lower LTV) usually leads to better remortgage deals.

        For example, if your home is valued at £300,000 and you have £180,000 remaining on your mortgage, your home equity is £120,000 and your LTV is 60%. The lower the LTV, the more attractive you are to lenders. Here’s how it might look in a table:

        Property Value£300,000
        Remaining Mortgage£180,000
        Home Equity [Property value – Remaining mortgage]£120,000
        Loan-to-Value (LTV) [Remaining mortgage / Property value] x 10060%

        Note that in a remortgage, your lender will have their own surveyors to assess your home’s value.

        4. Provide Proof of Stable Income

          A steady income and proof of affordability can ease lenders’ concerns about your ability to meet repayments. 

          So, make sure you gather all necessary documents such as your payslips, bank statements, tax returns, business accounts (if self-employed), rental income (if any), and government benefits (like pension or disability allowances). These can be part of your income. 

          Note though that each lender may have different requirements or different weights for these types of income.

          5. Work on Improving Your Credit Score

            While this isn’t something that can be achieved overnight, showing consistent improvements in your credit score over time could make lenders more amenable to your application.

            6. Compare Different Remortgage Offers

              Don’t go for the first offer you find. Different lenders have different criteria, and some might be more willing to offer you better terms than others.

              Remember, what works for one person might not work for another. It’s always a good idea to get professional advice when thinking about remortgaging. This is even more crucial if you have a bad credit history.

              The Bottom Line

              Throughout this comprehensive guide, we’ve provided you with important insights to help you in the remortgaging process, particularly for those with bad credit. 

              To recap, here are the key takeaways:

              • Remortgaging with bad credit is possible, although it may come with higher rates.
              • Home equity can influence your borrowing capacity, providing an avenue for debt consolidation.
              • Lenders evaluate factors beyond just credit scores, such as income, outgoings, and employment status.
              • Credit issues, like defaults, CCJs, and bankruptcy, require strategic approaches to improve remortgaging chances.
              • Transparent communication of intentions and a clear reason for remortgaging help lenders assess the risk.

              Engaging a good mortgage broker can significantly simplify the process and increase your chances of remortgaging with bad credit. 

              They can guide you, break down the complicated bits, and help you spot the best deals out there. Consider having a chat with one; it’s like having a friendly expert in your corner.  

              To benefit from this, don’t hesitate to contact us today. We’ll pair you with an experienced mortgage broker to assist you with your remortgage quest.