Hi, it's Malcolm and I'm joined by my colleague Wayne. Today I'm going to talk about remortgaging for customers that have had a bad credit history.
So if you had a good credit history in the past, but something happened to your score during your mortgage term, can you stay with your current lender to raise extra money?
Or the fact that you've had this issue, would that potentially lead to a decline there?
As a starting point, I would always try to stay with your existing lender if at all possible. If your credit has deteriorated, since you took that original loan out, there is a good chance that they would decline you.
Then it comes down to, how important is it? How necessary is it that you raise any extra funds or that you do what you need to do?
If it's something that that has to be done, then you've probably got little choice other than to remortgage to a lender that would accept you with your credit history.
We talked about bad credit, so we’re talking about things like county court judgments, defaults, debt management Plans, that kind of thing, and that it is possible to move lenders with a bad credit history if you've got a decent amount of equity.
What kind of bad credit is allowed? What if I just had a default recently? Am I going to find it kind of really difficult?
The further away you are from the event that happened to spark off the drop in your credit score, the better.
You might be more likely to be able to move your loan. If it is something very recent, particularly if you've missed recent mortgage payments, for example, you've got to put yourself in a new lender's shoes.
A new lender is not going to trust you with paying back a new mortgage, if you couldn’t pay back the old one.
Let’s say I've got a £150,000 mortgage with a high street lender, but I need to raise an extra £10,000 for some necessary home improvements or to consolidate some debts.
Are there any other options than taking the whole amount of my mortgage and transferring it to one of these specialist lenders that are going to charge me a higher rate of interest?
It certainly would be an area that we would look at, where what's known as the second charge mortgage might be more appropriate. Your mortgage lender has what's called the first charge.
They're the people who can get first call on the money. If you were to default, that property gets sold, they get first call. You could go to another lender and they could give you a secured loan against that property and then it would have to sit legally behind your existing lenders charge, hence Second Charge.
The advantages are that at least you can keep your high street rate with your existing high street lender and only then pay any higher rates on the extra amount that you're borrowing, rather than have to pay the higher rate on the whole amount.
So rather than have £160,000 at 6%, I could keep my £150,000 grand at my 2 or 3% mortgage rate. The fact that I'm paying 10 or 15% on this extra £10,000 financially, it might be better off.
It works out better overall.
Okay. I'm with a specialist lender and I need to borrow more money. Since I've taken out my mortgage, I've had another default since then. Can I move from one specialist lender and remortgage to another specialist lender?
Each lender will have their own rules as to how bad things have to be before they wouldn't allow you to go.
Some lenders are more forgiving than others. They will still assess it within their own criteria, but if their criteria is more forgiving than the lenders that you've just moved from, then there's no reason why you couldn't do it.
I think the law has become a law of diminishing returns, if you're are going to carry on down that route, at some point, people are just going to say no.
So I think again, you've got to see that as a watershed, really, that if I'm doing this, I'm doing it to solve the problem once and for all.
So a real specialist area this. If you've got bad credit, a lot of these lenders only make those products available through mortgage brokers.
Please feel free to reach out for us for remortgage advice, and we'll be happy to help.
As long as you have a good repayment history then it should be possible to remortgage with bad credit. The longer ago your credit issues were the better but some lenders ignore minor blips such as disputes with mobile phone providers.
As with any remortgage, the interest rate payable will depend on your credit score and also how much equity you have in your home. You can also look to capital raise when you look for remortgage advice.