Why Can’t I Get a Remortgage Deal?

Low Credit Score

Banks, building Societies and other lending institutions increasingly use credit scoring as a way of initially assessing potential borrowers. Each lender will have its own method of measuring a credit score which will look at the type of financial characteristics that it wants and does not want in its customers. Primarily, the key factors giving rise to a high score relate to stability and consistency. Living for more than three years at the same address and being on the electoral register, being in long term and stable employment and well maintained bank accounts and credit cards give the bank confidence that a customer is stable and can manage their money well.

Interestingly, however someone who believes they have an impeccable credit record because they have always paid off their credit card balances each month, never been overdrawn or never taken out a hire purchase or lease agreement may be surprised and disappointed to find that their credit score may well be lower in the eyes of a lender or credit provider than someone who only pays the minimum payment each month on their credit cards, has their car on a lease agreement and has taken store credit to buy furniture for their home. In either of these cases the credit record is well maintained but in the latter case, the lender will see that the customer may well be more profitable for them with the potential to sell them other interest paying products in the future.

If you have a low credit score then unfortunately there is no quick fix to improving it. Make sure all the information held at credit agencies is correct. There are two main credit referencing agencies used by banks, building societies, credit card providers and lenders; www.experian.co.uk and www.equifax.co.uk . Visit these sites and you can get a copy of your credit record for a few pounds and sometimes for free. If something is not correct then follow the guidelines within the sites to get it changed. Make sure you are on the electoral register at the address where you live. Always pay your monthly financial commitments on time and try your best to never miss a payment. Do not take out too many credit cards, personal loans or hire purchase arrangements as it may appear to lenders that you are financially overstretched.

If you are unsure about how your credit score may impact your mortgage or remortgage application then it may be a good idea to discuss your case with an independent mortgage broker who will be well placed to find you a remortgage deal to suit your circumstances or find a lender that does not use credit scoring. Click here if you wish to have a free no obligation discussion with an independent and impartial mortgage broker.

Low Income levels

Regardless of your credit score, the amount of mortgage or remortgage available to you will be governed by the level of your regular income. Since the credit crisis in late 2007, lenders have seriously tightened the acceptance criteria of their mortgage products and one of the features of this is to restrict the salary multiples available. A salary multiple is where the bank set the maximum remortgage available to you on the basis of a multiple of your gross salary. For many years, this multiple was around 3-4 times your annual salary. In other words if you earned £25,000 per annum then the likely maximum loan available would have been in the range of £75,000 to £100,000.

In the buoyant period from about 2000 up to 2007, some lenders relaxed this criteria and quite often granted mortgages up to 5 times income levels. This method of assessing the maximum level of mortgage funds available has come under increased scrutiny since the credit crisis and lenders are now focusing on affordability calculations which look more closely at your monthly outgoings and other financial commitments to assess whether you can afford a mortgage at the level you have requested. Whilst each lender uses different methods to assess affordability, the income multiple method of 3-4 times annual salary is still a good ‘rule of thumb’ for you to personally estimate how much you could borrow.

Poor Credit history

During the years from 2000 to 2007, many mortgage lenders were created to help people with poor credit histories to obtain finance to buy or remortgage their homes. Although the mortgage products available were more expensive than their ‘high street’ counterparts, they did allow people with some historic financial problems such as county court judgements and missed credit payments a solution which if they kept up repayments would eventually mean they could remortgage with a high street lender once their credit record was ‘repaired’. Unfortunately, since the credit crisis virtually all of these products have been withdrawn and many of the lenders involved have stopped lending altogether. At this current moment it is incredibly difficult for anyone with a poor credit record to obtain a mortgage or remortgage. There are a few lenders that will allow one or two missed credit payments in the last 36 months and maybe a small county court judgement but all missed payments and CCJs will need to be cleared or settled at time of applying and the interest rate charged will reflect the higher risk.

If you have a poor credit record and you can manage your current monthly mortgage payment and other financial commitments, it may be better for you to remain with your current lender and try to keep your credit record ‘clean’ until such times as the historic issues no longer register on your credit file. For many this may not be possible as there may be problems with periods of unemployment, illness, family bereavement etc that can cause serious credit and debt issues. In these circumstances remortgaging will be virtually impossible and you may need to consider other options such as a debt management programme or an individual voluntary arrangement (IVA). If you are facing serious debt problems then it is very important to act quickly in informing your creditors of the situation e.g. your mortgage provider, bank and credit card providers. In the current economic climate they should be sympathetic to genuine cases of hardship and can quite often reschedule payments and freeze interest on outstanding balances. If you wish to get some advice regarding your debt problems then click here to talk confidentially to an independent debt adviser

High Loan To Value (LTV)

Loan to value (LTV) is the percentage of mortgage you have outstanding on your property relative to its value e.g. if you have a £75,000 mortgage on a property worth £100,000 then the LTV is 75%.

Generally speaking in the current volatile economic climate and with uncertainty around whether house prices are beginning to trend downwards, lenders have become less inclined to lend at a loan to value above 85% and are generally more comfortable with LTVs at 75% and below. This is reflected in the cost of higher LTV deals where the interest rate is considerably higher than for deals at 75% and below. Lender’s decisions on what level of mortgage to allow a customer are always based on a series of assessments around risk e.g. risk of the customer not being able to make monthly payments. As the ultimate goal of the lender is to eventually receive full repayment of their original loan, they must have precautions in place that protect that goal should the borrower not be able to repay the loan. Even though lenders do not ever want to repossess a property, they must be sure that if they have to resort to this then the house they are repossessing will actually sell for the amount of the outstanding loan. Only lending up to 75%-85% of a property’s value means they are giving themselves a reasonable buffer should property prices fall.

During the period 2000 to 2007, many people remortgaged regularly to raise finance from their properties that were increasing in value by up to 20% per year. Lenders allowed higher LTVs on the assumption that the actual LTV would rapidly diminish as property prices continued to rise. For example £75,000 mortgage on £100,000 property value = 75% LTV. If the property rises in value to £125,000 then LTV reduces to 60%. Now that we are seeing a period of stagnant or falling house prices coupled with lower LTV limits from lenders, many people find themselves with mortgages over 90% of the value of their properties and in some cases in negative equity where the outstanding loan is more than the house’s value. People in this position will not be able to remortgage until property prices rise again and their LTV is improved.

Even if you think that your LTV is too high for you to be able to remortgage, it is still a good idea to talk to an independent mortgage broker as mortgage products change continuously and he should be aware of all the latest remortgage deals available.

No Proof Of Income

During the early noughties, lenders devised the ‘self certified’ mortgage product. This product was initially created for a whole group of potential borrowers who could not prove their income and were therefore allowed to self certify their yearly earnings. This was initially designed and very useful for self employed people who had not been trading for very long or who had no current financial accounts readily available. It was also useful for those people that had second jobs for example taxi driving in the evenings etc where again it was difficult to prove income levels from accepted sources e.g. accountants, employers etc. Although this was a very useful product and helped many people to legitimately obtain mortgages that they would not have been able to get prior to its launch, it was open to abuse and particularly in the USA has been cited as a major contributor to the credit crisis on the basis that it opened the door to many fraudulent mortgage applications from people who lied about their income levels and then unsurprisingly fell into arrears with their payments.

Since early in 2008 self certified mortgages have all but disappeared from lender’s product ranges and income verification is now considerably stricter. Most lenders will now require employed people to have a continuous 12 month employment record and salary levels which they will have to prove by way of payslips and P60s. Self employed people will, in most cases, need to have traded for at least a year and sometimes two and have accounts available certified by a qualified accountant or official income tax calculation forms issued by HM Revenue and Customs.

If you do not have the recognised proof of income documents then you may be able to get some lenders to look at your case on its individual merits where they may accept alternative documentation. In cases such as this, it is always worth using an independent mortgage broker who will be experienced in presenting your case to the lender in order that you get the remortgage deals best suited to your circumstances.