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What to do if you’re struggling to remortgage

Regularly reviewing your mortgage can save you hundreds or even thousands of pounds. However, some people might find it difficult or even impossible to remortgage.

Why should you remortgage?

There are many reasons to review your mortgage and potentially remortgage. But all of them are about making sure you’re on the best deal.

New mortgages normally start you on a fixed or discounted rate deal for an agreed number of years or period of time, sometimes called the initial term. When this deal ends, your repayments might go up.

Interest rates can go up and down, which can affect the cost of your mortgage and cheaper products can come onto the market.

Why can I not remortgage?

There are many reasons why you might struggle to remortgage, but most of these come down to you failing the stricter affordability checks brought in after you bought your property.

Often referred to as 'mortgage prisoners', these people can be stuck on higher interest mortgages, or their lenders standard variable rate despite being up-to-date with their mortgage payments and not trying to increase their borrowing.

New rules introduced by the Financial Conduct Authority (FCA) might mean it is now easier for some people stuck on more expensive mortgages to switch.

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However, if you’re going to benefit from the new rules, it's important to understand not all lenders will offer this, and you will still need to meet certain eligibility criteria to remortgage.

Low credit rating

If you have a low credit score, you are less likely to be able remortgage. Even if you can remortgage, you are less likely to get a good deal and can face higher interest charges.

Building a good credit score, or credit rating, can be slow, but there are a lot of things you can do.

If you don’t know your credit score, the first thing to do is check it with one of the three main credit rating agencies.

There are then a few things you can do to improve it, including checking for any errors, paying off debts and avoiding or paying off high cost credit.

High loan to value

The value of your property can go down, as well as up. This means when you come to switch your mortgage you could be assessed on a higher loan to value (LTV), which reduces you chances of successfully remortgaging.

The loan to value is the amount you borrowed (or if you’re remortgaging, the amount left to pay back) compared with the value of the property. For example, if you borrowed £160,000 to buy a £200,000 home, your LTV would be 80%.

But if your home had gone down in value to £175,000, but there was still £150,000 left on the mortgage, your LTV is more than 85%.

This is particularly a problem for people who were able to take out 100% or 120% mortgages before the credit crisis.

Being in negative equity will also cause problems when it comes to remortgaging. This is where the amount outstanding on your mortgage is more than value of the property.

Drop in income

If your personal or household income has dropped since you took out your mortgage, for example if you’ve changed jobs, been forced to reduce your hours or split up with your partner, you might struggle to remortgage.

Income does not technically make up part of your credit score. But a drop in income could mean you fail the affordability assessment.

Missed payment and mortgage arrears

If you’re currently in arrears on your mortgage, or have missed mortgage payments in the last 12 months, even if you’re no longer in arrears, you are going to struggle to remortgage, even under the new FCA rules.

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MoneyHelper is the new, easy way to get clear, free, impartial help for all your money and pension choices. Whatever your circumstances or plans, move forward with MoneyHelper.

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