How to Remortgage with Bad Credit

Your credit report is an essential piece of financial information when it comes to remortgaging. It reveals what credit and loan debt you have outstanding and your history of meeting your mortgage and other debt repayments. With this in mind, how easy is it to remortgage with bad credit?

Having bad credit doesn't mean a lender will automatically turn you down for a remortgage. However, you may have to work harder as remortgaging with bad credit can be harder than getting approved for a standard mortgage. This is especially true if you have a bankruptcy, defaults, CCJs (county court judgments), or IVAs (individual voluntary arrangements) in your credit history. But even with bad credit, there are still remortgage options available to you.

When a mortgage lender checks your credit file, they’ll view certain financial behaviours as a red flag that you may not be a responsible borrower, including:

• Frequently setting up new accounts – your credit score should drop for a small amount of time when you open a new bank account. But doing this frequently can mean your credit score doesn't have enough time to recover
• Too close to your credit limit – using your entire overdraft or maxing out your credit card can make lenders think you’re struggling financially or over-reliant on credit
• Applying for credit too frequently – making multiple credit applications can impact your score, even if those applications are successful. Each application records a hard search on your credit report
• Borrowing more than you can afford – if you cannot pay off your debts, you may have had to get an IVA (individual voluntary arrangement) or debt relief order. Alternatively, lenders may try to recover the debt with a CCJ (county court judgement) or applying to make you bankrupt. Any of these can significantly impact your credit rating and make it very difficult for you to get credit in the future
• Missing regular payments – if you miss several regular payments to your lenders, a default is recorded on your credit report, which can lower your credit score significantly for up to 6 years
• Little or no credit history – never having credit can leave you with a low credit score. Lenders can't see whether you’re a responsible lender or not

It can be difficult to remortgage when you have mortgage arrears, especially if you have other poor credit issues on your file. Mortgage arrears are considered one of the most serious forms of missed or late payments by lenders. However, some bad credit remortgage lenders are more flexible if the issues occurred some time ago and you can explain why payments were missed or demonstrate that the situation is now resolved.

A common reason for a remortgage application to be declined is because there are defaults on your credit file. However, there are specialist default mortgages available that can assist you in these circumstances. Lenders will want to assess:

While each lender has its own lending criteria, some will accept you for a remortgage if you have a CCJ. It generally depends on when the CCJ took place. If it occurred more than two years ago, you are more likely to be accepted than if it was within the last 12 months. Lenders will also want to know how much the CCJ was for, how many CCJs you've had, whether they were satisfied or unsatisfied and your ability to afford the new mortgage. The type of mortgage you’re applying for also makes a difference. You’re more likely to be accepted with a CCJ for a remortgage than a buy-to-let mortgage  With any CCJ, whether this be for a remortgage or buy-to-let, the rates will likely be higher.

An IVA, or an individual voluntary arrangement, can affect your options for remortgaging. However, that doesn't mean to say it’ll stop you from remortgaging entirely. Depending on the lender and your particular circumstances, you can still remortgage while on an IVA and after an IVA. However, you’ll need to show lenders that you have been diligently making repayments during the time you've had an IVA. Lenders also want high equity to balance out the potential risk, especially with a recent IVA. A lender may ask you to provide proof of the last 12 to 24 months' worth of payments.

It’s usually possible to remortgage during or following a debt management plan, as long as you meet the lender's relevant criteria. You’ll need to know how much of the property you own. The allowed loan to value percentage is slightly higher (maximum of 80% to 85%). If your existing loan to value is at the minimum requirements, you cannot release equity by remortgaging. The lender will also want to look closely at affordability and the amount of debt you've had. As you might expect, if you have completed a DMP, you’re in a much better position to apply for a remortgage than if it was currently active.

There are many lenders who automatically reject mortgage applications from those who have experienced bankruptcy. However, there are some specialist mortgage lenders who will approve remortgages for borrowers who have been bankrupt.

It doesn't make much difference to getting a remortgage with bad credit if you already own your home. When you own a property outright, it means all the equity is yours, which is known as an unencumbered property. However, lenders treat a remortgage the same as any standard mortgage, depending on why you want to borrow. Unencumbered properties and bad credit mortgages are treated the same and assessed as regular mortgages.