What happens if you can’t remortgage? image

What happens if you can’t remortgage?

Remortgaging is the recommended option for homeowners coming to the end of a fixed-rate deal. This allows them to secure another fixed-rate mortgage deal to replace the one they are on so they can continue to benefit from predictable monthly repayments. But what happens if you can’t remortgage?

Homeowners not eligible for a remortgage will effectively become mortgage prisoners. This means they have no option but to stay on their current deal. A situation that could result in them paying higher monthly repayments as their loan transitions to a standard variable rate mortgage.

Well if that’s you don’t worry, it’s not the end of the world. In this blog, we are going to look at what options are open to you if you can’t remortgage, the reasons why you might be refused a loan in the first place and the steps you can take to improve your chances of being approved next time.

Reasons why you might be refused a remortgage

Mortgage lenders are free to set their own lending criteria and some are stricter than others. In some instances, while you may have been refused a loan from one mortgage provider, you may still be offered one by another. So if you are looking to remortgage it's always worthwhile talking to a mortgage broker.

Having said that, some red flags will cause most mortgage lenders to refuse your application. These include:

No proof of income

Borrowers that cannot provide any proof of income will have trouble securing a mortgage. Most lenders want to see at least 12 months of employment records in the form of payslips or a P60. While self-employed people will need to show that they have been trading for at least two years.

Bad credit history

Having a CCJ or a few late payment notices on your account will not necessarily prevent you from getting a loan. But in most cases, you will have to pay a higher rate of interest. To secure a good deal most lenders now want to see at least 36 months free from late payment and expect all CCJs to be cleared before approving a loan.

Low income

Borrowers on low incomes will have trouble getting approved for a loan, regardless of how good their credit rating is. Most lenders will not consider loaning more than 4x salary. So if your combined household income is £30,000 the maximum you can expect to borrow is around £120,000.

Find out how much you can afford to borrow by completing our affordability calculator.

High loan-to-value (LTV) ratio

The loan-to-value ratio is the percentage of your loan that is unpaid in relation to the value of the property. So if your home is worth £100,000 and you have a mortgage for £75,000 you have an LTV of 75%. Most lenders have a maximum LTV of 85%, but some will only consider loans up to 75% LTV.

Low mortgage balance

The mortgage balance is the amount left to pay on the mortgage. Borrowers with a small mortgage balance may find they are refused a loan. This is not necessarily a bad thing because remortgaging a small balance could leave you paying more than paying the loan off once remortgage fees are taken into account.

A Product Transfer may be a better option

Borrowers that have been turned down for a remortgage, may be able to arrange a Product Transfer with their existing lender instead. A product transfer is simply the process of transferring your mortgage to a new fixed or variable-rate deal once your current one expires.

Benefits of a product transfer

Quick and easy – Applying for a product transfer is much less hassle than a remortgage. There is no need to complete a detailed application form or provide proof of income. In most cases, the application form can be completed in a few minutes.

No fees to pay – Unlike a remortgage, there are no solicitor, conveyancing or valuation fees to pay. In some cases, this can make product transfers more cost-effective than remortgaging itself.

No affordability checks – Because you are switching loans with the same provider there is no need to carry out further affordability checks. This makes the process of applying for a Product Transfer relatively simple and stress-free.

Flexible – You can even increase the size of your mortgage if you wish. But the loan will be assessed to make sure the maximum loan-to-value ratio is met. The lender may also seek further affordability checks to ensure you can afford the monthly repayments.

So if you have been turned down for a remortgage, don’t panic, it's not the end of the world. There are still funding options open to you. And there is the possibility of improving your credit history to greatly improve your chances of being approved next time.

How you can improve your chances of being approved

Being refused a remortgage can leave you feeling demoralised but don’t worry even if you have been refused today, there are steps you can take to greatly increase the chances of being approved later. You don’t have to remain a mortgage prisoner forever.

Make sure you can comfortably afford the repayments

You can increase the chances of being approved for a remortgage by making sure you can afford the monthly repayments. Even if you have poor credit history some lenders will consider your application, but only if they are sure you can comfortably afford to repay it.

The easiest way to see how much you can afford is to use an affordability calculator. This will allow you to see how much you can afford to pay each month without affecting your credit score. This will allow you to apply for loans that you know you’re eligible for, greatly reducing the chances of being rejected.

Calculator Affordability
Offer to make an overpayment

Borrowers requesting a loan higher than 75% LTV can increase their chances of being approved by offering to make an overpayment. This will bring the LTV down to a more manageable amount and make the application more appealing to lenders.

Note: Before taking this step, make sure the lender does not charge early repayment fees.

Reduce your other debts

Mortgage lenders get nervous when they see borrowers carrying large amounts of unsecured debt. You can boost your chances of being approved for a remortgage by reducing your credit card and overdraft to 25% of your available credit limit.

This is known as your credit utilization ratio (CUR). The lower your CUR the more you will appear like a responsible borrower to prospective lenders.

Cut back on non-essential spending

Most lenders will look at your monthly spending to ensure you can afford the monthly repayments. You can increase the chances of being approved by reducing your non-essential spending.

Look at your monthly outgoingness to identify areas to cut back on. Do you still need that expensive gym membership? Can you cut down on takeaways? Can you combine mobile phone plans to save money? The more spare cash you can free up the more likely you will be approved for a loan.

Improve your credit score

Having a bad credit score will prevent you from being approved for a mortgage by most lenders. However, there are steps you can take to improve your credit rating making it more likely that you’ll be approved next time.

Steps you can take include registering to vote, paying your bills on time and paying down your overdraft and credit card bills. You may also want to consider applying for a credit building credit card that rewards you for keeping your account in good standing.

What happens if you can’t remortgage?

Borrowers that have been refused a remortgage from a high-street lender, should contact a mortgage broker to see if they are eligible for a loan from a specialist lender or qualify for a product transfer.

The finance specialists at WIS Mortgages can evaluate your circumstances to see what options are open to you. Get in touch with our specialist mortgage team today for more personalized advice by completing the contact form here. Your consultation is FREE and all advice is impartial.

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As a mortgage is secured against your home/property it may be repossessed if you do not keep up with the mortgage repayments.

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