Remortgaging your home can yield many benefits, such as predictable monthly payments or releasing equity for other needs, such as renovations or helping a loved one with a deposit.
If you’re struggling to remortgage or are worried about affordability, you’re not alone.
Soaring mortgage rates over the past year or so have put a huge financial strain on household budgets as millions face higher rates when their fixed-rate deal ends.
This article will take you through key reasons why you may not be able to afford to remortgage and what to do next.
Why can’t I remortgage my property?
There are many reasons why you may not be able to afford to remortgage, including:
Your monthly payments are too high
The Bank of England’s (BoE) raft of base rate increases in its battle against inflation caused mortgage rates to rise at a record pace in 2022, according to Statista.
Sadly, rates have continued to climb for most of this year, following even more base rate rises.
While lenders have recently started to cut mortgage rates, if you’re remortgaging soon, you’ll likely face paying several hundred pounds more a month.
Alongside higher prices for nearly all other day-to-day expenses, including groceries and utility bills, this may be too much for some households to bear.
You’ve missed mortgage payments or are in arrears
You may struggle to remortgage if you’ve missed any mortgage payments in the previous 12 months or you are in arrears.
This may make it harder to either get a new mortgage or one with a competitive rate.
The value of your home has fallen
If the value of your home has decreased, you may have to apply for a mortgage with a higher loan to value (LTV), which is the outstanding amount on your mortgage compared to your property’s value.
This can be an issue as it reduces your chance of successfully remortgaging, especially as a higher LTV means you’ll face a higher mortgage rate.
If the value of your home is less than the value of your mortgage, known as negative equity, you’ll find it very difficult to remortgage.
You have a bad credit rating
If you have a low credit score, then you may be rejected for a remortgage or have limited options.
It’s always a good idea to check your credit score before applying for a new mortgage, as it gives you the opportunity to correct any errors or clear any existing debt to boost your score.
You should also consider doing a soft credit check for any financial products you apply for, as this won’t hurt your credit rating.
As you can remortgage up to six months before your fixed-rate deal ends, it’s worth avoiding applying for any credit at this time as it could impact your credit score.
Your income has fallen, or your circumstances have changed
You may find it difficult to remortgage if you’ve had a drop in income, recently changed jobs, become self-employed, or are facing redundancy.
Other circumstances can also have an impact. For example, if you start a family or go on maternity or paternity leave, this can affect your remortgage application.
While this can be scary, a mortgage broker can help you find the right deal for you.
You’re spending too much
As some lenders look at your debt-to-income ratio, if your outgoings are too high, you may fail affordability checks and have trouble remortgaging.
The lender may be concerned that you don’t have enough money after paying your utility bills. While there’s no set debt-to-income ratio you need to pass to get a remortgage, it’s worth being aware of.
A mortgage broker can find the best mortgage for you by looking at your income and spending.
What to do if you can’t remortgage due to affordability
It can be unsettling to have a remortgage application rejected, especially as this could leave you at the mercy of eye-wateringly high standard variable rates (SVRs).
Here are some things you can do if your remortgage application has fallen through:
Talk to a mortgage broker for expert advice
First, we would recommend talking to a mortgage broker, as they’ll be able to find the most competitive deal for you, taking your circumstances into account.
So, for example, if you are self-employed or were rejected based on your debt-to-income ratio, they may be able to help by looking at specialist lenders.
Don’t panic apply
You should avoid making any further mortgage applications until you talk to a broker, as some applications involve a hard credit check, which can impact your credit score.
Extend your mortgage term
Alternatively, extending your mortgage term when remortgaging could cut your monthly payments, although you’ll end up paying more interest overall.
If your circumstances change, when you remortgage, you can choose a shorter mortgage term.
Stay loyal to your existing lender
Instead of going through an affordability check with a new lender, you could stay with your current one and avoid this altogether, which is useful if your circumstances have changed.
A big downside is that you may miss out on the most competitive deals on the market.
Switch to an interest-only mortgage
Similar to extending your mortgage term, this shouldn’t be a permanent solution as you’ll have to pay the outstanding mortgage balance when the overall term ends.
A part and part mortgage may be worth considering as you’ll pay some of your mortgage instead of only interest, but you would owe the outstanding balance when your overall mortgage term ends.
A part and part mortgage is a combination of an interest-only and repayment mortgage, so you can pay a set amount of your mortgage back, instead of the whole amount.
You can change your current mortgage at the end of the term without early repayment charges.
Boost your credit score
One way to potentially access more competitive rates is by having a good credit score, as you’re seen as lower risk compared to applicants with poor credit scores.
As we mentioned, it’s a good idea to check your credit score regularly, as well as your credit report, so you can identify any errors and fix them as soon as possible.
There are also lots of simple ways to boost your credit score.
Consider adding a guarantor
You can add a guarantor to your mortgage regardless of if it’s a new one or a remortgage.
While adding a guarantor can increase your affordability, it is risky for a guarantor as they agree to pay your mortgage if you can’t, and their property is used as security.
If you need a guarantor for your mortgage, they should get financial advice, as it is risky.
Consider paying off a lump sum
If you’re close to a new LTV threshold that’ll offer access to lower rates and monthly payments, it might be worth using a lump sum to pay off more of your mortgage.
It’s worth talking to a mortgage broker to see if this is right for your circumstances – after all, there’s no point in paying a lump sum if the lower rates are negligible.
It can be stressful remortgaging, but you don’t have to do it alone.
Unbiased can connect you with a mortgage broker who can find the most competitive mortgage regardless of your circumstances.