To use an old English proverb, “When there’s a will, there’s a way”. That’s the Polar Mortgages approach to refinancing and we’d like to you show the way to get on the path to successfully remortgaging your property.
It is likely to be easier than you thought to remortgage with bad credit. It does take a little know-how of the sub-prime market, knowledge of each companies lending criteria. It will be much easier with an expert broker in your corner to assess your circumstances, explain your options and point you in the right direction.
This page has all the details you’ll need to help you make an informed decision, going forward. Or, you can fast track past the reading and researching, reach an expert advisor for impartial advice based on your own unique circumstances, without any obligation whatsoever.
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Whatever your circumstances, as a homeowner, you have an Ace up your sleeve for these exact times. And often what you’ll find by Googling are statements along the lines of this…
Depending on what your current mortgage rate and terms are with your existing mortgage provider, you could remortgage at a better rate than your existing one, making it an absolute no-brainer to shift your current mortgage deal.
Sounds promising on the surface, but dig deeper and you soon discover that’s applicable to homeowners on a fairly high standard variable rate with one of the big four banks and a were-near perfect score.
To remortgage with bad credit, things are a little bit more complicated and require thorough research and knowledge about how the finance system operates.
Just when you realise that you’re in need of a cash injection, that’s when you’re faced with the harsh reality that the cards seem to be stacked against you.
Rejection, rejection and even more rejection....
The application refusals come thick and fast after your first application is rejected.
That’s because it happens automatically because of reporting and systematic automation.
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What you ought to know about borrowing is simply that banks do not lend you their own money. It begs the question - How did you get your mortgage in the first place, then?
And that’s a good one… once best answered by American economist, Professor Hyman Philip Minsky, who explained it like this:
“The fundamental banking activity is accepting, that is, guaranteeing that some party is creditworthy. A bank, by accepting a debt instrument, agrees to make specified payments if the debtor will not or cannot”.
Michael Reiss explains more in-depth about this seemingly outrageous claim on PositiveMoney.Org, breaking it down into terms all of us can easily understand.
It’s a guaranteed I.O.U.
Or in fanciful terms when the Bank of England uses these, they call them Treasury Bills. The Funding for Lending Scheme that was set up to boost bank lending in 2012 is essentially run with I.O.U notes.
The BBC explains how FLS works in these words:
“Banks and other lenders approach the Bank of England, if they want. They swap assets they already have, such as loans, with the Bank. It in turn provides them with pieces of paper known as Treasury bills, for a four-year period.
The commercial banks are then able to use these bits of paper as top quality backing with which to borrow cash in the wholesale financial markets, from other lenders. With the Treasury's backing, the idea is that they will be able to borrow funds at very cheap rates.”
Those “bits of paper” are promises to repay.
When you sign a loan agreement, the bank arranges to release capital. If you don’t repay that, it’s them who foot the bill from wherever they borrowed from. That can be a commercial bank borrowing from the Bank of England, or a subprime lender borrowing from a commercial bank.
And that’s why reporting agencies exist!
Remortgaging with bad credit is swings and roundabouts, requiring expert navigation.
The nuts and bolts of borrowing are simply about risk versus rewards. The higher the stakes, the bigger the price of entry is. All the main banks are not enthusiastic about taking on high risk borrowers. They keep themselves safe by only taking on new customers who they deem to be of an acceptable risk, which is often very low risk.
Your risk-level is assessed using the information available on your report files, which holds details about your personal money management with any firm you have finance available from, be it credit cards, store cards, a car loan, and even details about mobile phone contracts.
As specialists in the remortgaging marketplace, Polar brokers cater to a wide variety of circumstances to make sure your home improvement project gets financed and underway.
You are creditworthy / trustworthy - Because they’ll be left with your debt if you don’t repay on your promise. It’s not always about not trusting you to repay, it’s more about the costs associated with chasing debts.
Late payments, reminder letters and telephone calls are all overheads that drive profits down. That’s just to find out what the problem is that’s causing your account to be in default. There’s a much higher expense if legal action is required.
You can afford your repayments - Simply put, you cannot pay money out if you don’t have it in the first place. A full check will show approvals and rejections.
This happens right at the outset of any loan application. That’s not to be confused with a quotation. The difference with a quotation search is that it does not get shown to prospective lenders further along the line. Only you and the other party you’re applying to know about your interest in whatever product you want to access.
People with a sub-prime history can often be an opportunity for lenders to pickup good business they would not have had otherwise.
Chances are you know there’s something amiss with your personal finances when doors that were open to you when you got your mortgage, are now closed off.
Most homeowners will first approach their current lender to remortgage. Sometimes, they’re successful. Unless, there’s been a financial mishap since you took the initial home loan out.
That’s when attitudes change.
What was once the best deal when you took out your existing mortgage is likely to be a) refused/not to be repeated or extended or b) offered with a change to your terms and conditions making it a dreadful offer. One you may even be considering because of the restrictions you feel you’re challenged with.
When that happens, you do not need to settle for unfavourable terms.
Better terms and rates can be found when you know what the entire market has to offer.
That’s one of our key roles at Polar Mortgages - sub prime is our strength.
Our advisors will access Whole-of-Market mortgage deals to tap into the under-the-radar smaller lenders, pit them all against each other and find the best firm that is the most likely to approve on your remortgage.
People reach us feeling disheartened. Then they smile. Especially when they discover that we charge zero upfront fees.
Complete this short form and we’ll give you advice directly from an expert in the adverse remortgage market. Enquire Today
That is the number one reason for all mortgage or loan applications being denied. Having a previous application rejected.
Right after your first refusal, it is advisable to halt applying for any type of credit until you establish what the exact barriers are, then direct your applications to a suitable finance firm.
Bad credit loans of any sort are all about understanding the risk level financial firms will view your application as.
Part of personal finance that you may not be aware of with all types of loan companies is that there are two types:
The vast majority of high street lenders are risk averse, meaning they will not approve an application by someone they consider to have poor money management abilities.
In the finance sector, the term used for mainstream lenders is prime lenders. The subprime market is the opposite as they are more likely to approve applications for people with an unfavourable file.
“Prime is a classification of borrowers, rates or holdings in the lending market that are considered to be of high quality. This classification is placed on those borrowers that are deemed to be the most credit-worthy and the prime rate is the rate that a lender will lend to its high quality borrowers.”
“Subprime is a classification of borrowers with a tarnished or limited credit history. Lenders will use a scoring system to determine which loans a borrower may qualify for. These loans carry more credit risk, and as such, will carry higher interest rates as well. Approximately 25% of mortgage origination's are classified as subprime.”
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Knowing what information is being disclosed to those in a decision-making position is likely the only part of the process you’ve been lacking, thus far.
If you’ve been refused a remortgage, there will have been a hard check done on your file. That means that every lender you apply to for the next year following that, will know you’ve been rejected, automatically putting your application under the microscope for careful scrutiny. From here on, insist on getting a soft check done. This does not show to other lenders, but it will show enough information to the firm you apply to for them to make a decision in principle.
This won’t be an offer, but they’ll get enough information to check your eligibility for a product. It’s also an identity check, but what’s important to understand is that an offer or decision in principle is not airtight.
All financial products require a full credit check, and that is shown on your report. The more hits there are, the less favourable a customer you appear to new lenders you approach. They view multiple hits as you being desperate to raise cash. As in, you’ve got yourself into a hole, reaching panic stations trying to dig your way out.
Hard searches are visible for one year and will show as a rejection. There is an exception to the 12-month limit and that’s for debt collection agencies that search your files. Those can stay on your file for two years.
What happens after you apply for a bad credit remortgage?
Technically, a bad credit remortgage doesn’t exist, but it’s generally what people understand about the type of product they want to access. When you apply for a remortgage, you’re going to be assessed just the same as you were when you first got your mortgage. If that’s currently with a high street bank, any negative entry on your file will, in all likelihood, lead to a refusal or unfavourable contractual obligations.
The hot spots that most banks will not approve include:
Each of the above are classified as adverse entries, which raises concerns about your ability to manage personal finances.
Once an entry is on your credit file it remains there for six years before dropping off. During that time, your ability to obtain finance of any sort will be hindered. That’s not to say you can’t. It just puts the emphasis on finding the right lender that’s most suited to accepting you as a new customer.
They make that decision using the information obtained from your report. Not the score assigned to it. That’s only for reference for you to use as a guideline to judge for yourself how others are likely to perceive your creditworthiness.
Finance firms all use their own in-house scoring systems. Not that of Experian, Call Credit or Equifax and that’s because they all have varying levels of risks they find acceptable and others that are out of their comfort zone.
The key to unlocking a remortgage that’s right for the type of adverse entry you have rests in knowing what organisations will be open to considering your application.
None will outright guarantee approval.
Considering that 75% of the mortgage market is dominated by Prime lenders means that you have only a one in four chance of directing your application to a suitable lender.
Our advice is simple and that’s not to gamble with your home.
We certainly won’t.
We can assist and do extensive comparisons across the whole of the market and assess broker only options (ones which cannot be found on any public comparison website) to find the most suitable option for your personal circumstances.
Complete this short form and we’ll give you advice directly from an expert in the adverse remortgage market.
In case you’re wondering: Your details only go to our in-house advisors, so there’s no information sharing, and certainly no credit check required to receive advice from our team.
Tip: A rule to obey is not to ask for money without knowing and understanding what’s on your credit report.
Credit reports are the backbone of consumer borrowing. The first thing to know is how to obtain these files. They are held by Credit Reporting/Referencing Agencies (CRAs) and there are only three that operate in the UK.
There are other providers but the data they provide comes from these three Credit Reference Agencies:
Now, like all organisations, they are not perfect. There may be errors or inaccurate data on your record. To find them, you need to access your files and you can do that very easily and cheaply, or even for free.
The data access you need is a statutory report. There’s no membership or free trials required for this due to a change in legislation that makes it mandatory for consumers to know exactly what personal information any business has about them.
All businesses are required to disclose any personal information they have about you, but only when you ask them to. There is an administration cost of £2 for each of these. You may have an impaired credit history that you can fix if the entry is in error.
It is advisable to check that the information that’s held by each agency is accurate. Any inaccuracies you identify, you can request a correction be made, or insert a Notice of Correction yourself.
Each CRA will be able to assist you with this. If you need help to make amendments, there are debt charities able to assist. The most notable being the Citizen’s Advice Bureau, and Step Change (formerly the Consumer Credit Counselling Services). What you should never do is use a credit repair company. They’ll charge you for services you can do yourself.
To correct errors, the approach to take is to first contact the creditor who supplied the information and request the information be corrected and updated to the Credit Reporting Agency. If that fails, you can contact the CRA directly to request them to update your information. You can also request to have a financial disassociation for any person named as being financially linked to you, if that’s no longer the case.
And if there are disputes or you find yourself being passed from pillar to post, you can also add a Notice of Correction. Each Credit Reporting Agency will provide you with free assistance to make changes when they can, and when they can’t debt charities will assist you. Your personal information belongs to you, and you do have a lot of control over what’s shown on your files.
The only thing you cannot do is request information be changed because it makes you look bad on paper. If the information’s true, it will stay. If it’s not, request it be changed. If the processes are too formal or you don’t quite understand how to have information changed that’s affecting your finances; debt charities have the most resourceful staff that will be able to help you.
These can be accessed using the links below, which will open in a new browser window/tab should you want to quickly check them, then continue here to find out if the free reports will be of any use to you.
Statutory Credit Report
Statutory Credit Report
Statutory Credit Report
You can also access this data for free, but it is not the same as the statutory reports. Free reports are available from third party providers. The information they hold is not as accurate because there’s a delay between information being updated to the main Credit Reference Agencies and then them sharing that data with their partner providers. This can be up to two months before the free providers have access to your updated information.
Should you feel there have been no significant changes in the last two months to your personal finances, you can obtain free reports from any of these services:
Free Clear Score Credit Report
Free Credit Reporting Service by Noddle
MoneySavingExpert.Com’s Credit Club
There are two primary sources of information the CRAs obtain data from:
Naturally, the more risk factors you have shown on your reports, the less your chance of approval will be. Some will be overlooked, while others will get your application dismissed, although that is dependent on the assessment criteria of the lender.
Get a list of the finance providers with the most suitable lending criteria to match your circumstances
Taking this step will take the guesswork out of remortgaging. Get bespoke finance solutions with truly unbiased advice from bad credit veterans.
When you get your credit report, you’ll see a credit score assigned to it. Each company has different scales they use, but they’re all irrelevant and can safely be ignored.
It’s only the information that’s pertinent. Credit scores are one of the many myths about finance. It’s only to use as a guideline for you to get a rough idea of your own creditworthiness.
In the real world, there’s no lender going to base their financial risk assessment on a pre-set criteria built by a data collection business.
All lenders have their own credit scoring systems, which are based on the risk levels they are comfortable with, or can extend a loan with adjustments made to the terms, and/or interest rates to reflect a higher or lower level of risk, most often reflected by interest rate adjustments.
The only thing lenders are interested with in the report is the information it contains. Not the numbers. Every finance company, be it a loan firm, bank, or a mobile phone provider trying to establish if they can take on the risk of giving you a high-end handset, wants assurance you can be trusted to repay.
They do that using their own criteria. Every finance firm has a different approach.
This test has been in place since 2014, and its purpose is clear. To ensure that anyone taking out any type of secured loan can indeed afford the repayments. This is applicable to all applicants so don’t feel you’re being further scrutinised because of a discrepancy on your report.
Your credit report can only provide a risk assessment based on your past performance. This last check to get a remortgage is to ensure that going forward you will be able to afford the monthly repayments.
Part of this test takes into consideration your existing debt levels. This is measured as a debt-to-income ratio. Recommended is to have that level below 45%. The lower your debt-to-income ratio is, the healthier your application will be.
To check for yourself that you can repay comfortably, the Money Advice Service offer a free to use affordability calculator. You’ll find that using the link below.
The affordability test is not only about being able to afford the repayments just now. It factors in risk factors outside of your control. One of those being, could you still afford the repayments if the interest rates were to increase?
This was tightened in 2017 when the Financial Policy Committee recommended in June that interest rate stress tests be tested at 3% higher than the reversion rate, within the first five years of the loan being taken out.
What this means is that some (as it’s only a recommendation and applicable to lenders with “residential mortgage lending in excess of £100 million per annum”) lenders may test your affordability at a rate that’s 3% higher than the rate they’re offering. In layman terms, if you’re offered a 2.75% interest rate, you may need to afford the repayments at a rate of 5.75%.
Being unable to afford the repayments may result in a refusal, and since your credit report is hard checked, it will show as a rejection, putting you right back to square one.
We can help you avoid that trap as we work closely with every lender on our panel and keep updated to any changes to their lending criteria. We know how they stress test, the risk factors they’re comfortable with, and when they’ll reject an application.
Our knowledge of lenders and the mortgage market regulations means we’re in a strong position to assist anyone with an impaired credit rating to get their applications forwarded to the most appropriate mortgage lender in the best position to assist you.