Understanding Why You Can’t Remortgage
In most cases, remortgaging applications are rejected by lenders due to failed affordability assessments. This means that the lender checked your credit file, income, outgoings and existing debt levels, then decided that the risk was too great. Far from being something to feel angry about, it’s the sign of a responsible lender. Of course, that won’t help you right now!
Lenders must be sure that you can afford to pay back what you want to borrow. If you’re already juggling a lot of debt, you might not be able to keep up with all your repayments. If most of your income is used up every month, there’s a good chance you’ll struggle with your budget.
If your credit score is low, that’s a clear sign that your financial record isn’t up to scratch. A poor credit rating shows that you might have missed bill payments, or have fallen behind with your debts.
The first step to resolving your current problem is finding out why you were rejected.
Calculate Your Debt to Income Ratio
If you’ve been keeping up with all of your bills, there’s something else affecting your approval rates. Check if it’s your debt-to-income ratio.
To calculate your debt-to-income ratio, add up the total of debt payments you make every month. This should include all debts and bills including loan repayments, mortgage payments, car repayments and credit cards. Divide this your total monthly income, then multiply the result by 100.
Most lenders want your debt to be no more than 45% of your income. This shows that you should be able to pay your monthly bills. Lenders will evaluate your income and expenditure to check that remortgaging’s affordable.
Decide What to Work On
Likely, you can’t get a remortgage because your debt-to-income ratio’s too high, or your credit score shows that you’re managing your money quite badly. If it’s the former, you’ll need to spend some time reducing your overall debt. If it’s the latter, pay all your bills on time and work on improving your credit score. Fortunately, reducing your overall debt level will also give a boost to your credit score.
Improving your credit score takes time. Paying off debt can, likewise, take many months. There aren’t any quick fixes if your money situation is already limiting your options. Keep your mortgage where it is and focus on making repayments. Don’t fall behind on your mortgage debt, as this will only add to your problems.
Remember that even when your applications are approved, you’re not completely out of the woods.
At some point, you’ll be in a better financial position. When that happens, lenders are more likely to approve your applications. This doesn’t mean that you’re in a great situation. Lenders offset the risk of a less-than-perfect creditor by charging higher interest rates for mortgages, so if you’re only just starting to get remortgage offers, then they’re likely to be very expensive.
The more you can improve your credit score, the better the remortgage deals you’ll get. Work hard at improving your credit file, reducing your debt or finding ways to increase your income.
Loan to Value Impact
The loan-to-value is how much you want to borrow against the total value of your property. When you first took out a mortgage, your loan-to-value may have been around 90%. A 10% deposit means you’ll have borrowed 90% of your property’s value.
Over time, the value of your property is likely to have risen or, in some cases, fallen. This can have an impact on your options for remortgaging. If you’ve been clearing your mortgage, but your property value’s dropped, you may still have a similar loan-to-value need as when you started.
Imagine that you had a £20,000 deposit for a property worth £200,000. You originally borrowed £180,000, with interest added on top. You’ve spent years making mortgage repayments, but during that time, your property value has dropped by £20,000 – a significant drop that may be unlikely. Still, it is possible depending on changes to your location (if it has suffered from unexpected flood damage or an influx of commercial properties).
If you remortgaged, you might even find that you owe more than your property is worth, because your repayments have barely touched the actual debt level in the first few years. This would make your loan-to-value higher than it was in the first place!
Remortgaging is difficult when you want to borrow against most of your property’s value. You may end up trapped in your current mortgage deal, at least until your property value goes up again.
Modified Affordability Assessments
If you’ve kept up with all your repayments, and don’t have any unpaid fees or charges, some lenders might be able to modify their usual assessments. They might decide not to do certain affordability checks. This can put you at a higher risk of problems in the future, but it means you have more chance of getting your remortgage approved.
A modified affordability assessment could help you to escape your current mortgage. Lenders must be able to offer a mortgage that’s more affordable than your current deal, with lower monthly payments, under the belief that if you’ve kept up in the past, you’ll have no trouble keeping up in future.
If you agree to a modified affordability assessment, you must be aware of the risks. This means that you’re getting a mortgage based on your current situation, though you might struggle if you were already getting close to having issues with your existing mortgage.
If your existing mortgage is barely affordable, a slightly more affordable remortgaging deal might not end up solving all your problems.
Finding Financial Support
If you’re struggling to do things alone, there’s plenty of support around to help you. Debt management charities offer free services to help you pay back what you owe. There are several approaches to careful debt management that don’t require insolvency, so you won’t lose your home straight away.
Getting on top of any money problems can help you to remortgage your property. Remortgaging might save even more money, so it’s always worth doing whatever you can to keep all your mortgage options open.
If your credit score’s not great, or you’re struggling with debt, reach out to a debt advice charity. They can help you create a realistic budget and get your debts and bills back on track. Around 18% of people who speak to StepChange, the largest charity, are homeowners – so you aren’t alone, and they have experience in helping people in your situation.