There are lots of reasons why you might want to remortgage your home. You could be looking for more flexible repayment terms, lower monthly installments or hoping to release some equity for home improvements. Whatever the reason, being rejected for a remortgage can be disheartening and leave you feeling like a mortgage prisoner, stuck with a bad deal in a market full of more lucrative offers.
Luckily, there are steps you can take to improve your chances of getting a remortgage in future, as well as other routes to consider, depending on your circumstances.
Reasons Why You Could Be Refused a Remortgage
If you’ve been turned down for a remortgage, the first thing you need to to is find out why. Once you understand the problem, you can start taking steps to fix it.
Whatever the reason for your rejection, it is very important not to rush immediately into making another application. Without working out why you were turned down the first time and finding the remedy, you risk being rejected again by a second lender.
If that happens, you’ll only make the situation worse. A string of refused credit applications will erode your credit score and crush your chances of getting a remortgage in the future.
Instead, consider some of the most common reasons people are refused a remortgage and if any of these could apply to you, start making moves to improve your chances:
Mortgage Refusal: Low Income
If your income has decreased since you took out your current mortgage, your new lender could decide that you don’t pass their affordability tests, even if you’re up-to-date on payments. Before the 2008 financial crash, lenders were more relaxed about selling expensive mortgages to low-wage earners, but things are now much more restrictive.
The good news is, the Financial Conduct Authority recently introduced new rules to help people in this situation. It allows lenders to choose to overlook some aspects of affordability tests, provided that:
- You already have a mortgage
- You’re not using the remortgage for a new property
- You aren’t in arrears on your current mortgage and haven’t missed any payments in the last 12 months
- There are no unpaid fees on your current mortgage
- You’re not borrowing in excess of your current mortgage
- Your remortgage is more affordable than your current one
If you think you could fit these criteria, ask your lender about the possibility of a ‘modified affordability assessment’. They are not obliged to offer one to you, but if they do, it could be your route to a remortgage.
Mortgage Refusal: Something’s Off on Your Credit File
As a humble credit-seeking consumer, it might sometimes feel that credit agencies wield almighty power over your financial life, but that doesn’t mean they don’t make mistakes. Before you apply for a remortgage, check your credit file. Something as small as a spelling mistake in your address could lead to you being turned down, even if you have a perfectly good credit history.
If you do find a mistake, you can report it to the credit agency, who will have 28 days to rectify it. In the meantime, the mistaken entry will show up as ‘in dispute’ on your record, and won’t be considered in any applications you make during this time.
Mortgage Refusal: Bad Credit
If you have a history of missed payments, are loaded up on debt and are regularly late to pay your bills, you probably have bad credit. This will certainly make lenders think twice before entering into a mortgage agreement with you.
Start by looking at your credit score.
If it’s ‘fair’ or below, there is room for improvement and while there is no overnight fix to a bad credit score, there are steps you can take to start heading in the right direction.
- Make sure you’re on the electoral roll. You can register to vote online; doing so is guaranteed to improve your credit score.
- Pay your bills on time. If you’re guilty of forgetting to pay bills when they’re due, consider setting up direct debits for your repeating accounts. If you are indebted to lots of different small loan providers, you might consider consolidating your debt to make it easier to manage. If you’re struggling to pay bills due to a cash flow problem, try speaking to a financial advisor or debt counselling service to help get back on track. Just one late payment enough to damage your credit score; but luckily, this is reversible by building a habit of paying on time.
- Reduce your preexisting debt. If you can pay off overdrafts, credit cards or other preexisting debts you owe before applying to remortgage, your credit file will be in much better shape. When lenders consider how much you can afford to borrow, they will take into account how much you already owe to other providers.
- Minimise your debt utilisation ratio. If you hold credit cards or overdrafts, avoid maxing them out. Credit agencies will look at how close you are to reaching your credit limit when working out your score.
Arrears on Your Current Mortgage or Recently Missed Payments
If you’re in arrears on your current mortgage, it should come as no surprise that your new lender has second thoughts about entering into a loan agreement with you. To successfully get a remortgage, you’ll need to be up to date on your payments and fees for your current mortgage and have a clean sheet (I.e. no late payments) stretching back at least 12 months.
Mortgage Refusal: House Prices Have Dropped
When lenders decide whether to accept your application, one thing they will consider is your loan-to-value ratio (LTV). This is the ratio between the amount you want to borrow versus the amount you can deposit.
Before the 2008 financial crash, it was possible to take out a 100% mortgage- or even a 120% mortgage- but this is no longer the case. Now, lenders will often require you to cover at least 15% of your home’s value, while they lend you the remaining 85%.
If house prices have fallen since you took out your mortgage, your LTV ratio could have been affected. For example, if you home was worth £100, 000 when you bought it and you took out an £80, 000 mortgage, your LTV ratio was 80%. If house prices then fell and your home is now only valued at £90,000, your LTV ratio would be 88%.
If you suspect your LTV ratio could be to blame for your remortgage refusal, there are several things your could consider.
- If you have already paid off some of your mortgage, you could consider releasing equity in your home to top up your deposit and lower your LTV ratio. Bear in mind that equity can be an expensive way to borrow, and you should work out whether it is a cost-effective option for you.
- Borrow less. If you have savings, you might want to tap into these to reduce the amount you need to borrow and lower your LTV ratio. If you don’t have savings but have a good credit score, you might consider taking out a loan to top up your deposit, although the interest rates and repayments on this could make it a less affordable option in the long run.
- Shop around for a better home valuation. House price valuations in the UK typically vary +/- 15% depending on the person conducting the valuation, according to specialists Net-House-Prices. If you suspect your home has been undervalued, seek a second opinion. You could be pleasantly surprised.
Alternatives to Remortgaging
If none of the strategies mentioned above suit you, you might want to consider alternative options to a full remortgage. While these won’t have exactly the same outcome, they could still help you make the most of the deal you’re on and potentially save you money:
Talk to Your Current Provider
If you haven’t already, talk to your current mortgage provider about your problems with their current deal. There is a small chance that they could be more willing to remortgage you than other providers because you already have a relationship. However, this is only really worthwhile if they have lower rates available for new customers or other better value products.
Take Out a Further Advance
If the reason you want to remortgage is to fund improvements to your home, you could ask your current provider for a further advance. This is an additional loan which is added on to your current mortgage, but has its own interest rate and terms.
How much you can borrow will depend on how much you have left to pay on your current mortgage and the providers’ assessment of your ability to repay.
Further advances normally have competitive interest rates when compared to personal loans, but do come with fees which can be costly. In addition to this, you should remember that the loan is secured against your home, so if you don’t keep up with payments your home is at risk.
How Can the Mortgage Bank Help?
Here at The Mortgage Bank, we have partnered with some of the UK’s leading mortgage brokers.
They have already helped thousands of people get the best remortgage deal even people that have been refused before, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.