Having a bad credit rating can feel like a barrier to managing your finances, especially when it comes to major financial decisions like a remortgage. Choosing to remortgage is a way to save money on mortgage repayments and can enable you to consolidate debts or release equity from your home. However, an adverse credit history can make it feel like managing your finances is out of your grasp.

Thankfully, it is possible to remortgage a property, even with a bad credit history. While it presents more challenges than a standard application, having a less-than-perfect credit history does not automatically disqualify you from finding a new mortgage deal. Most mortgage lenders will be hesitant, but it is not impossible to secure a new mortgage deal. There is also a wide range of specialist lenders who may be more willing to consider your individual circumstances.
As such, securing a remortgage with bad credit requires a careful approach and specialist knowledge. At JMW, we provide the expert legal support needed to complete your remortgage, and handle the entire process professionally and efficiently on your behalf. Here, we explain how bad credit caused by mortgage arrears, significant loan repayments or county court judgments (CCJs) can affect the remortgaging process, and what you need to know to secure the best remortgage deal available under these circumstances.

What Causes a Low Credit Score?

When mortgage lenders assess your application, the term ‘bad credit’ can refer to a variety of financial issues on your credit report. These are markers of adverse credit that suggest a higher risk. The severity of these issues and how recently they occurred are also factors in a lender's decision.

Common examples of adverse credit include:

• Missed or late payments on credit cards, loans or your existing mortgage
• Defaults on previous credit agreements
• CCJs issued against you for unpaid debts
• Debt Management Plans
• Individual Voluntary Arrangements (IVAs)
• Bankruptcy orders
• Repossession of a property

Lenders review your credit history to understand how reliably you manage and repay debt. A single missed payment from several years ago will be viewed very differently from a recent bankruptcy. Some people choose to remortgage to consolidate other debts into a single mortgage, but this is not always a viable option for those with bad credit. Lenders will carefully assess your affordability to establish that you can manage the new loan amount. You should speak to a residential property solicitor for advice on whether or not this is the best way to achieve your financial goals.

How Your Credit History Affects Mortgage Rates

Your credit history is a key component of your mortgage application. If you have a poor credit history, you should be prepared for a different experience than someone with a perfect credit rating. A history of severe credit issues can lead to:

• Higher interest rates: Lenders offset the increased risk associated with bad credit by charging higher interest rates. This means your monthly repayments could be higher than those offered by high street lenders.
• Limited lender choice: Many high street lenders use automated credit scoring systems that may automatically reject applications with adverse credit. This limits your options and makes it essential to find the right lender for your situation.
• Lower loan to value (LTV) ratio: LTV expresses the ratio of the amount of money you borrow compared to the overall value of the property. You must have more equity in your property before remortgaging if lenders will only offer a low LTV ratio, so it may be necessary to wait before your remortgage.

This will depend on when your credit issues began. If your credit score has improved over the fixed term of paying your mortgage, you may still receive better mortgage terms by remortgaging than you did when you first agreed terms with your current lender.

It is also important to know that most adverse credit markers are removed from your credit report after a set period, which is typically six years for concerns like defaults and late payments, CCJs, IVAs or bankruptcies. Once they are paid, they will be marked as 'satisfied', which is viewed more favourably by mortgage lenders. However, they will not be removed until six years have passed.

With that said, it is not always advisable to wait for bad credit to clear before you remortgage. If your current mortgage deal is ending, you will likely be moved onto your lender's standard variable rate (SVR), which is usually much more expensive. The cost of a high SVR could easily outweigh the benefit of waiting, and it is always best to explore your options with a mortgage advisor before your current deal expires. Bear in mind that as bad credit markers get older, their negative impact on your credit score lessens. Lenders are always more concerned with recent credit issues than historical ones.

Are Specialist Lenders and Mortgage Brokers a Viable Option?

If you want to remortgage with bad credit, your first step may be to speak to your current mortgage provider. The existing lender may be able to offer you a 'product transfer' to a new deal without a new credit check. This is a simpler option if your adverse credit isn't related to your existing mortgage payments.

If you wish to choose a new lender, a specialist mortgage broker may offer you the best option. Unlike going directly to a bank, a mortgage broker has access to a much wider market of mortgage lenders, including those who specialise in bad credit remortgages.

These specialist bad credit remortgage lenders often take a more manual approach to underwriting. Instead of relying solely on an automated credit score, they assess each application on a case-by-case basis, considering the reasons behind your credit issues and your current financial position.

A good mortgage broker will know the specific criteria of these bad credit lenders and can match you with the one most likely to approve your application, helping you secure a better deal than you might find alone.

It is also important to seek legal advice. Some lenders offer fee-free remortgage packages including free legal advice, but this means working with a solicitor chosen by the lender. Given that the terms of these mortgage deals are designed to minimise risk for the lender, it is important that a solicitor review them for you and advise you on what it will take for you to comply.

Can I Improve My Credit Score?

Taking steps to improve your credit rating before applying for a remortgage can open up more options and lead to better interest rates. First, check your credit file for any mistakes and contact the credit reference agencies to have them corrected. Paying down balances on credit cards and overdrafts to below 30% of the total available credit can quickly improve a bad credit score, and paying small bills on time consistently can also demonstrate reliability.

There is no single minimum credit score required to remortgage in the UK. Each lender has its own criteria, and the score itself is only one part of their assessment. Each of the main credit reference agencies also uses a different scoring system, so your score will vary between them.

While a low credit score means you may have fewer lenders to choose from, focusing on other parts of your application can also help you to secure a competitive deal. Mortgage lenders look at your application holistically. They will consider:

• Your credit history, including the type, age and value of your credit issues
• Your income and employment, and how they affect your ability to afford the monthly repayments
• The loan to value ratio and how much equity you own, as more equity means less risk for the lender
• Your existing debts

Even if it does not prevent you from remortgaging, a poor credit score can lead to higher mortgage rates than those advertised by high street banks. As such, it is advisable to improve your credit score as much as possible before pursuing any remortgage to get the best possible deal.