What Happens If You Can’t Afford a Remortgage?

An unfortunate byproduct of the current economic situation is people being unable to remortgage. This is especially the case where rising interest rates are squeezing homeowner’s affordability.

The good news is that there are many ways to remortgage even if you are having difficulty and with the right expert advice you should find a new product. Remortgaging difficulties are normally due to affordability, however there are some other reasons people struggle.

Let’s explore remortgaging and what you can do to make the process smoother.

Reasons You Might Not Be Able to Remortgage

There is a myriad of reasons why you might not be able to remortgage. Sometimes people have a change of circumstances between when they obtained the mortgage and the time for remortgaging.

For example, if you became self employed during your product period, your income and proof of income will have changed by the time you come to remortgage.

Another common reason is the higher interest rates on mortgage products. If you borrowed close to your capacity originally at a lower interest rate, the higher interest rates may make your mortgage unaffordable when you come to remortgage.
Below we outline in more detail reasons for struggling with a remortgage and tackle how you can fix those issues.

Affordability

When you take a mortgage product in the UK, the lender must be satisfied that you can afford the loan. Most lenders will allow you to borrow up to 4.5 times your annual salary, however there are lenders who will let you borrow more. The key factors that impact your mortgage affordability are your income, financial commitments and overall term period.

When remortgaging, you should find that the amount of capital you are borrowing has reduced providing you have kept up with your mortgage repayments. Earlier in the mortgage term, the amount of capital you repay will be negligible due to most of your monthly payment going toward interest.

Later in the mortgage term, it should be easier to remortgage as your loan requirement should have reduced considerably.

If your income has changed by the time you come to remortgage you should ensure you have all income proof documentation ready to demonstrate to the lender you can repay the loan. Remember that if you switch to self-employment, most lenders require at least 2 years of Tax Calculations and Tax Year Overviews (which are generated following submission of a tax return to HMRC) before they can accept your income. As an example, this can be a blow to mortgage applicants that are used to employed criteria where only 1-3 months of payslips are required to proceed with an application.

Low Mortgage Balance

Most lenders have a minimum loan amount, so if the outstanding capital on your mortgage is below this threshold you may struggle to remortgage.

It is fairly common for the final year of a mortgage to be unmortgageable, and most people opt to pay off the loan at that point.

The good news is if your product term has ended, you will be able to make overpayments on your mortgage with most lenders without penalty. If you absolutely must remortgage, you can either extend your borrowing or find a lender who will allow you to borrow the low mortgage balance.

Bad Credit History

Over time your credit rating will change. This is because it is a floating score that tracks your financial situation over your life.

If your credit rating drops during your product term, you may find products that were previously available to you are now not. Whether you have a mortgage or not, you should be actively keeping track of your credit score and fixing any issues that may arise.

High Loan to Value

Property values change and there is a myth that property prices will always rise over time. The truth is that most properties increase in value, due to demand largely outstripping property supply in the U.K, but you may find your property value drops for the following reasons:

• Poor maintenance or property management – for example building on the property without planning permission
• Area changes that negatively impact property values like higher crime rates
• External developments that negatively impact your property value such as a major road or commercial project built in close proximity

If your loan to value ratio increases, you may need to put down additional money to cover the difference and secure a remortgage. Most lenders operate at a minimum of 5% equity required for a mortgage.

What To Do If You Can’t Remortgage Due to Affordability?

If you struggle to remortgage due to affordability the best option may be to find a more specialist lender who will allow you to borrow the money you need. For example, if you have a lender who calculated your affordability at 4 times your annual salary, you may be able to remortgage with a lender who allows 5 times your salary.

In a scenario where you are struggling to find a suitable mortgage lender, Whole of Market mortgage brokers like Boon Brokers are worth their weight in gold. They have bespoke systems that can quickly ascertain your maximum loan sums with all regulated lenders in the country. They can also determine whether your fact-find information fits their criteria.

Hold Off on Getting a New Mortgage

In some cases, you might not be able to remortgage even if your lender has a generous affordability calculation. In these instances, it might be better to delay your remortgage while you secure a higher income, most commonly by seeking a pay rise or finding a new higher paid job.

Whilst not ideal, delaying for a few months and fixing your finances will be much better than being stuck indefinitely on a Standard Variable Rate mortgage.

Consider Adjusting Your Mortgage Term

If you borrowed over 25 years, you may be able to extend your mortgage term and reduce your monthly payments. This will ease the stress-test of affordability and you may be able to remortgage by simply extending your term. However, be aware of the cost implications of extending your mortgage term. You will be paying more in interest over a longer mortgage term.

Switch to Interest Only Mortgage

If you are unable to afford your mortgage payment once your product term ends you may be able to switch to an interest only mortgage.

This will prevent you needing to sell the house; however, you should be aware the capital will need to repaid at some point in the future.

Accessing an interest-only mortgage is difficult in the current mortgage market. Most lenders have minimum income and equity criteria before you can apply for an interest-only mortgage.

Improve Credit Score

If your credit score has dropped, there are many steps you can take to improve your credit profile. For example, registering to vote at your address is a free step that has a marked improvement on your credit rating.

You may find that you need to source a different type of lender who specialises in bad credit remortgages.

Product Transfer with Current Lender

Remortgaging is the act of paying off your mortgage with one lender and borrowing the amount with a different lender.

You may find that you are unable to remortgage, but your current lender will offer a product transfer. In these situations, a product transfer is invaluable as you will be able to secure a lower interest rate than the lender’s Standard Variable Rate.

However, rather than going directly to a lender for a Product Transfer, you should consider using a fee-free broker like Boon Brokers. If a broker processes your PT, they can track your mortgage throughout the loan term to ensure that you always have the most suitable mortgage deal. Whereas, your existing lender can only provide their mortgage product range, which is highly limited compared to whole of market access from a broker.

Add a Guarantor

Adding a guarantor is a big step to take and you should consult with a mortgage broker to evaluate any other options available to you.

Guarantor mortgages are different to traditional mortgage products and your guarantor will need to make any mortgage payments you fail to make. Guarantors take on a significant risk, as they take responsibility to repay the mortgage if you fail to do so.

However, guarantor mortgages are rarely available in the current market.

Get Expert Mortgage Advice

Irrespective of your financial situation, you should always consult with a Whole of Market mortgage broker when you are ready to remortgage. Doing so will achieve the best mortgage rate for your circumstances and allow you to weigh up any options available to you.

Speak to a Mortgage Broker

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers provides free no obligation mortgage advice.

Contact Boon Brokers to book your remortgage consultation today.