What are your options if you can’t remortgage?

What are mortgage prisoners? 

Mortgage prisoners are homeowners who want to remortgage to get a better deal or move to a new house, but can’t. They’re typically stuck with higher interest rates, despite paying their mortgage on time. 

Why might I be refused a remortgage application? 

Each lender uses their own eligibility criteria. Having said that, there are some common reasons why a remortgage application might be refused. These include:  

1. Low mortgage balance 

Some lenders may reject your application if you’re nearing the end of your mortgage term and you don’t have much left to pay.  

From your point of view, you may not save much money by switching at this point. Especially if your current lender would apply early repayment charges for leaving before your deal ends.  

2. Affordability   

When you apply, the lender will check your income and outgoings to see if you can afford the remortgage deal. If you fail their affordability checks, your application is likely to be refused. Lenders may see it as too risky to approve, from their perspective.  

Plus, they don’t want to put you in any financial difficulty by lending you more than you can afford to repay. In the worst-case scenario, falling behind with payments could put your home at risk of repossession. Also, any missed payments would impact your credit score and ability to get finance in the future. 

3. Bad credit history  

When you apply for a remortgage, the lender will check your credit report to see how well you’ve managed money in the past. They use this information to predict your future behaviour and decide whether to lend to you. Having a poor credit history could limit your options. If you are accepted, you may face higher interest rates due to the risk the lender is taking. 

Your credit score isn’t necessarily the be-all and end-all though. The more time that has passed since a negative marker (like a default) was registered, the less impact it should have.  

4. High loan-to-value ratio 

Your loan-to-value (LTV) is the ratio between: 

• Your outstanding mortgage balance, and 
• The current value of your property 

The more you borrow against your property, the higher your LTV will be. The more difficult it could be to remortgage as a result. 

This is because lenders each have their own maximum LTV. Many won’t allow you to borrow more than 90% of your home’s value, for example. These limitations are designed to reduce the risk of you falling into negative equity. (This is when your property is worth less than your outstanding mortgage balance). 

How can I improve my chances? 

It can feel demoralising if you want to remortgage but your application is rejected. 

Remember, there are several things you can do to improve your chances of getting a better mortgage deal. 

1. Use eligibility calculators 

Each lender uses their own criteria, so you might be turned down by one lender and approved by another. There are some lenders who actually specialise in providing finance to those with less-than-perfect credit scores.  

Here at Ocean, for example, we work with a host of lenders who provide bad credit remortgages. We can check your eligibility before you apply, without affecting your credit score. 

We suggest you use online eligibility calculators to find out your chance of acceptance before you apply – without affecting your credit score. That way, you'll only apply for remortgage deals that you’re eligible for. 

2. Consider making overpayments 

If you’re not in a rush, it could pay off to wait a bit longer before you apply. Maintaining your repayments on time, every time will help you to build up your credit history in the long run. And it’ll show lenders that you can manage your money well. 

If you can afford to, consider making overpayments towards your current mortgage. This will reduce your mortgage balance quicker and increase your equity (i.e. the amount you own outright). 

Tip: Contact your lender before you make any overpayments, in case they charge early repayment charges. Many will let you pay up to around 10% a year for free. 

3. Reduce debts  

If you’ve got any spare cash, think about putting it towards your debts to boost your chances of approval.  

For the best results, try to reduce your total overdraft and credit card balances down to around 25% (or less) of your combined maximum credit limits. This percentage is known as your credit utilisation ratio. The less you spend on credit, the better. It will help you come across as a responsible borrower to lenders. 

If you are struggling with debts, it might be worth speaking to an organisation like Citizen’s Advice or StepChange. They offer free, non-judgmental advice to those in financial difficulty. 

4. Cut back on non-essential outgoings 

You can boost your affordability for a remortgage by reducing non-essential outgoings. These might include things like subscriptions you no longer use, or takeaways for example.  

It’s a good idea to create a budget to help you identify areas you can cut back on. List all your monthly outgoings and compare it to your income so you can see exactly what is coming in and going out. The more spare cash you can free up, the better your chances of getting approved. 

5. Improve your credit score 

You can check your credit score for free with any of the three main credit reference agencies in the UK (Experian, Equifax and TransUnion). Note, you can see your Equifax credit report free (for life) through our member-only platform, CredAbility. You can check it as many times as you like, without leaving a footprint. 

Once you know where you stand, you can work out how best to improve your credit score and in turn, your attractiveness to lenders. For example, if you’ve got a thin credit history, you could: 

• Register to vote
• Set up Direct Debits for bills
• Consider getting a credit-building credit card

Read on for more details on how to fix your credit history. 

What support is available? 

We suggest that you speak to your current mortgage provider to see if there’s anything they can do to help. Also, consider speaking to a mortgage adviser or broker (like Ocean). They’ll be able to go through your individual circumstances and help you find deals that you are eligible for. 

Mortgages are secured against your property. This means your home may be at risk if you fall behind with your mortgage repayments.

Disclaimer: All information and links are correct at the time of publishing.