How to Remortgage With Bad Credit

Learn all about how to remortgage with bad credit.

Updated: December 30, 2023
Matt Crabtree

Written By

Matt Crabtree

 

Remortgaging is a great way to get a better deal on your current mortgage rate. Alternatively, you can take equity out of your property to pay for home renovations or tackle existing debts.

There are many reasons why someone would consider remortgaging their property.

If you're looking to remortgage, it can be tricky with a bad credit rating. If you have a poor credit rating, your remortgage application will likely be rejected as mortgage lenders look at your credit history to get a clear idea of how you've handled money and finance.

Looking at your credit record, they can do a credit assessment to see if they're the right lender for your situation.

If you had a more positive credit record, the process would be more straightforward, but even with a bad credit score, finding bad credit mortgage lenders is not impossible.

In this article, you'll learn how to remortgage with bad credit and improve your credit rating so you don't have to worry about a poor credit score letting you down in the future.

What Is Remortgaging?

The remortgaging process is switching lenders while still living or keeping the property.

Remortgaging is also switching deals with your existing lender, referred to as a product transfer, and the only element of your mortgage that changes is the amount you repay each month. The idea of remortgaging is to alter your current mortgage deal in some way to get a better deal on interest rates or to release equity to give you access to money.

When switching mortgage lenders, there's a good chance you will find a new deal with lower interest rates so you can reduce your mortgage payments. When you change lenders, they pay off your old mortgage and your debt transfers to them.

The transfer process is a little more complex than switching deals with your current mortgage provider, as more admin will be involved, and you will have to pay additional fees.

Why Would Someone Consider Remortgaging?

Remortgaging can help save money on mortgage payments or free up some money without selling the property.

Alternatively, remortgaging can also let you borrow more than you currently owe, a cash injection to help improve your financial situation. The remortgage deal will depend on how much equity you have in the property, how much you want to borrow and if mortgage lenders think you can afford repayments.

There are several reasons why people remortgage, such as:

  • Home renovations: When you release equity in your property, you can start freeing up some of your money that you can use to renovate and improve your home.
  • Reduce monthly payments: By switching your mortgage deal, you can reduce your monthly payments. Having more of your income spare can improve your quality of living as you can use it to improve other aspects of your life.
  • Better deal elsewhere: Perhaps interest rates have reduced since you first took out your mortgage; you may want to take advantage of a better deal.
  • Debt consolidation: As part of a debt management plan, you may need access to cash to help consolidate other debts. If you're considering this option, speak with a financial advisor to ensure it is your best approach to get out of debt.
  • Change fixed-rate period: You may want a longer or shorter fixed-rate period. An extended period may give you some added security, so you may want to switch from a two-year fix to a five-year one. Alternatively, you may want a shorter period or one that varies with interest rate movements.

What Causes a Bad Credit Score?

You may be wondering how your poor credit score came about and various factors could have contributed to your poor credit score. You will first want to check your credit report, and you should see any of your past lines from your credit history.

There are several reasons why your credit score is bad, but some of the reasons could be due to the following factors:

  • Country Court Judgments: A County Court Judgment (CCJ) occurs if you fail to pay a lender money; you essentially have all your debts placed into one payment you pay back over time. If you have a CCJ on your report, it will majorly affect your credit score and can stay there for up to six years.
  • Missed or late payments: If you have missed any payments or have been late with payments on any credit balances, they will appear on your credit file. The more payments you miss, the more harm it does to your credit score.
  • Bankruptcy: If you've been declared bankrupt or have an Individual Voluntary Agreement, they will appear on your credit report for up to six years.
  • No credit history: If you've never taken out credit, this can also look bad on your credit report. As there is no proof of you being a creditworthy lender, it may not be easy to get lines of credit initially. Consider starting a new line of credit to help improve your no-credit history.

Can I Remortgage With a Bad Credit History?

The simple answer is yes, you can remortgage with bad credit. However, your choice of mortgage deals and mortgage brokers may be limited.

When you're looking to remortgage with bad credit, it's much like when you apply for your first mortgage. Most mortgage lenders and banks will look at your remortgage application as they did with your first one, checking for any mortgage arrears, seeing your credit score and assessing your credit history.

Mortgage lenders assess applicants' credit history and check their existing mortgage and any outstanding debts to see if they meet the lending criteria.

High street lenders may see your poor credit score as indicating poor money management and that you're not great with credit. Most lenders will require applicants to have minimum credit issues, but bad credit remortgage lenders may accept your low credit score.

Different bad credit situations will require alternative solutions. For example, if you have a low credit score with no CCJs and have not been declared bankrupt, you will find it easier to get remortgage deals than someone with CCJs and missed payments on their credit file.

The specialist market for bad credit remortgages isn't well known because specialist lenders are not directly available to borrowers with a bad credit score. Specialist lenders tend not to advertise but can be reached through specialist mortgage brokers who help individuals with bad credit scores.

How to Remortgage With Bad Credit

So, now you know that you can apply for a bad credit remortgage, you'll need to know how.

You can start the remortgaging with a bad credit process with the following steps.

1. Find a Mortgage Broker

You can check with your current mortgage lender to see if they can offer you a better deal or hire a specialist mortgage broker. A mortgage broker can help get you in contact with specialist lenders who will risk lending money to someone with a poor credit score.

A mortgage broker helps you find bad credit remortgage lenders. If you've got a poor credit history, you must seek out specialist lenders who offer bad credit mortgages. If you're unsure of where to look, we've compiled a short list of some remortgage brokers in the current UK mortgage market:

  • Ocean Finance: You can be matched with specialist lenders in bad credit mortgages to reduce monthly mortgage payments, and you may even be able to borrow money for other purposes with Ocean Finance.
  • Clever Mortgages: If you've got CCJs, defaults or other credit issues in your credit history, you may still be able to remortgage with Clever Mortgages. Specialist lenders help applicants with poor credit scores with mortgages and remortgages.
  • Simply Adverse: Specialist lenders that help remortgage with bad credit and adverse credit history. You can check if you qualify for a remortgage with bad credit online on the Simply Adverse website.
  • UK Moneyman: You can book a free consultation with specialist mortgage broker UK Moneyman seven days a week. You can start the conversation about finding a remortgage with bad credit. They can connect you with specialist mortgage lenders.
  • AS Mortgage Services: If you've got bad credit, even with CCJs and defaults, AS Mortgage Services is a bad credit mortgage broker that offers fee-free mortgage advice and can help you find a competitive deal.
  • CLS Money: A bad credit mortgage broker and advice specialist for people with adverse credit. CLS Money can help you secure a home loan. Yes, this isn't a remortgage option but an option to allow people with a bad credit score onto the property ladder.

2. Calculate Your Loan to Value

You will need to work out your loan-to-value (LTV) ratio, and this is essentially the lending risk assessment ratio that brokers and lenders use to examine your application before approving your mortgage or remortgage, in this case.

The LTV is calculated by taking the loan amount and deciding the property's value. You can do this yourself using an online calculator, but your broker will help you further by finding the best deals based on your LTV, so they should help you calculate it and be able to guide you accordingly.

3. Check and Improve Your Credit Rating

You can check your credit report at any time using credit reference agencies. The most popular credit reference agencies in the UK are Experian and TransUnion. They can show you your credit history, recent changes, potential missed payments and existing debts.

The credit reference agency will establish any credit you've taken out and give you a credit rating based on your previous lending habits.

Check for any mistakes, as your adverse credit score could be because of errors on your credit file. Make sure all the details are correct, like past debts and that all the credit on the file is yours.

If you do find errors on your credit report, you should contact the credit referencing agency so they can make amendments. Once amendments have been made, your credit rating improves.

4. Look at Available Bad Credit Remortgages

Bad credit remortgage rates will typically be higher than other remortgage and mortgage rates, as specialist bad credit lenders take more risk by helping something with credit issues. Your mortgage broker will come to you with the best remortgage deals, and you will need to decide which one is best suited for your needs.

We've compiled a list of factors to take into consideration when selecting a bad credit remortgage:

  • Remortgage rates: You will want to compare bad credit remortgage rates. Although the rates will be higher than regular mortgage rates, you may still find different and good deals with specialist lenders.
  • Look at experience: You should look at the previous experience both the broker and new lender have. Look at what they have to offer and see how they've helped people in a similar situation to yourself before. Look at your broker's lender contacts and use their knowledge to help inform your decision.
  • Your creditworthiness: If you've defaulted on your report, that may deter some lenders. So, you may want only to consider lenders that explicitly state they accept applicants with defaults in their credit history.
  • Variable or fixed: Consider what kind of interest rates you want. You can switch to a fixed interest rate from a variable or vice versa. Explore these options to determine the best choice for your financial situation.
  • Your current deal: To make sure switching or taking out equity is worth it, you will want to ensure the new agreement is better than your current deal. You may want to lower your monthly payments; in doing so, you will need a new deal to help that. Remortgage loan calculators can help you with this, as you can calculate your new monthly payments before you accept the loan.

5. Gather All the Necessary Documentation

Once you've decided on the remortgage deal, you must ensure you've got all the documentation you’ll be asked for in the application process. Typically, most lenders require the same information, so having it ready before applying will save you time.

You will need the following documentation for your remortgage application:

  • Proof of income: You must show proof of income by having your payslips from the last three months ready.
  • Proof of identity: You must provide a valid ID, like a UK passport and proof of address, to identify you quickly.
  • Tax returns: If you're self-employed, you must show your tax returns from the last few years.
  • Bank statements: Much like when taking out your original mortgage, you must provide bank statements from the last three years.
  • P60: You will need your latest P60 tax form to show how much you've paid in the most recent tax year.

If you apply for a joint remortgage, both parties must provide the above documentation. Once you have all these documents, you can use them for bad credit remortgages.

The process can take up to two months, but it may take longer if there are any issues with paperwork. If you're switching mortgage deals, change before your current one expires for a seamless switch.

How to Improve Adverse Credit History

Although we've got the solution to the problem of sharing how to remortgage with bad credit, we thought we could help you further with tips on creating a more positive credit report.

  • Examine your credit reports: If there are any inconsistencies, you should contact your credit reference agency to fix them, and you could see your credit score improve.
  • Voter registration: Having your name on your local voter registration list will make getting credit easier. When a lender runs identification checks, they must verify you live in the location you've provided, and by registering to vote, you can make this process a lot easier.
  • Repay any credit cards on time: If you currently have a credit card or are using an overdraft on your bank account, you should always repay the balance on time and in full. Missed payments can further harm your credit score. Good card management can increase your creditworthiness.
  • Use a credit builder: If you've not got a credit card already, consider applying for a credit builder credit card. It's a card designed specifically to help you improve your credit rating and tends to have lower credit limits than regular cards to prevent debt but enough credit for you to use and pay back to build your credit score.
  • Avoid cash advances: If you have a credit card or are considering getting one, try not to make any cash advances. When you withdraw cash from a credit card, you are charged interest daily on top of other fees, which can get costly quickly. So, to avoid going into debt, refrain from using cash advances on a credit card. If you need access to additional funds, consider taking out a loan.
  • Only apply for one credit line at a time: If you plan on taking out a new credit card or a loan, don't apply to several in one go. Each creditor will run a hard search on your report, and that will leave a mark, and too many can harm your credit score. Also, other lenders can see those marks. Only apply for lines of credit one at a time, and use eligibility checkers if you can, as they indicate if you will be accepted or not before you fill out an application.
  • Avoid early repayments: If you've got any outstanding credit, like payday loans or even your current mortgage, it may sound like a great idea to make your repayments early. However, that's only sometimes the case. Some lenders have early repayment charges, so you could repay more than planned. Check with your current lender if they have any charges before you may make an early repayment.

Remortgage With Bad Credit: The Verdict

Bad credit isn't ideal, but it isn't the end of the world when remortgages are concerned. You can apply for bad mortgages with a specialist broker despite poor credit.

However, you should still aim to improve your credit score over time to make getting lines of credit more accessible in the future. Aiming for a more positive credit rating can only improve your financial situation in the future.

Related Guides:

How to Remortgage With Bad Credit in the UK: FAQs

Do Mortgage Lenders Run a Credit Check When Remortgaging?

Can You Remortgage with a Bad Credit Score?

What Documents Are Needed for a Remortgage Application?

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