Reasons Why You Can’t Remortgage Your Home

Remortgaging, a term often used interchangeably with refinancing, is a strategic financial manoeuvre that many homeowners undertake to optimise their mortgage terms and potentially save money. Essentially, it involves replacing an existing mortgage with a new one, either with the same lender or a different one, while using the same property as collateral. The primary motivations behind remortgaging include:

  • Securing better interest rates,
  • Reducing monthly payments, or
  • Releasing equity tied up in the property.

In this article, we will explain why you may not be able to remortgage your property.

Reasons Why You Can’t Remortgage Your Home

Definition of Remortgaging

Remortgaging is the process of paying off an existing mortgage with the proceeds of a new mortgage using the same property as security. This process allows homeowners to renegotiate the terms of their mortgage loan, often to achieve more favourable terms or access additional funds.

Read more: What is an Urgent Remortgage?

Why You Can’t Remortgage

The ability to secure finance is always dependent on personal circumstances. This is true of remortgaging property as well. Many reasons why you can’t remortgage are linked to the valuation of your property and your financial situation.

Personal Circumstances

Mortgage lenders will assess your personal circumstances to determine whether you are a high-risk applicant.

Credit Score Issues

Your credit score serves as a critical indicator of your creditworthiness and can significantly influence your ability to remortgage.

Lenders rely heavily on credit scores when assessing mortgage applications. A high credit score indicates responsible financial behaviour and is typically associated with lower interest rates and more favourable mortgage terms. Conversely, a low credit score may result in higher interest rates or outright rejection of the remortgage application.

If your credit score has decreased during your time owning your property, mortgage lenders may consider you a repayment risk. Monitor your credit score over time and do your best to improve it before applying for a remortgage.

Changes in Financial Circumstances

A sudden loss of employment or a significant reduction in income can disrupt your ability to meet mortgage repayments and may make lenders hesitant to approve your remortgage application. Lenders typically assess your income stability and ability to repay the loan when considering a remortgage application.

An increase in debt or a decrease in income can result in a higher debt-to-income ratio, which may signal financial strain to lenders. A high debt-to-income ratio indicates that a significant portion of your income is already allocated to debt repayments, making it challenging to take on additional debt through a remortgage.

Affordability Issues

Affordability is a key consideration for lenders when evaluating remortgage applications, as they want to ensure that borrowers can comfortably afford the mortgage repayments.

Lenders assess the borrower's ability to afford the mortgage repayments based on their income, expenses, and existing debt obligations. A thorough evaluation of affordability helps lenders mitigate the risk of default and ensure that the borrower can sustain the mortgage over the long term.

Mortgage Arrears

Mortgage arrears, or missed mortgage payments, can have a detrimental impact on your remortgaging prospects.

Lenders are very likely to view a history of mortgage arrears as a red flag. It indicates financial instability and a higher risk of default. As a result, they may be reluctant to approve a remortgage application for homeowners with a history of missed payments.

Outstanding Mortgage Penalties

Early repayment penalties can hinder your ability to remortgage and should be carefully considered before proceeding with a remortgage. You will have to repay your current mortgage to start another mortgage, therefore any early repayment penalties need to be paid in full.

The presence of early repayment penalties can significantly impact the cost-effectiveness of remortgaging. Homeowners should carefully evaluate the potential savings from remortgaging against the costs of early repayment penalties to determine whether it's financially beneficial.

Age Restrictions

Age can be a determining factor in remortgaging eligibility, as some lenders impose age limits for remortgaging.

Some lenders have age restrictions for remortgaging, which may vary depending on the lender and the type of mortgage product. These age limits typically reflect the lender's risk tolerance and may restrict older homeowners' access to remortgaging options.

Older homeowners may find it more challenging to remortgage due to shorter remaining mortgage terms or limited options available to them. Homeowners need to consider their age and future financial goals when evaluating remortgaging options.

Property Circumstances

Various circumstances relate to the property value and condition.

Insufficient Equity

Equity represents the homeowner's ownership stake in the property. It is calculated by subtracting the outstanding mortgage balance from the property's current market value. Positive equity indicates that the property is worth more than what is owed on the mortgage.

Lenders typically require a minimum level of equity in the property to qualify for a remortgage. Insufficient equity may limit the homeowner's remortgaging options or result in higher interest rates, as lenders perceive higher levels of risk when the loan-to-value ratio is higher.

This is different from negative equity.

Negative Equity

Negative equity occurs when the outstanding balance on the mortgage exceeds the current market value of the property, posing significant challenges to remortgaging.

It occurs when the value of the property falls below the outstanding mortgage balance. This situation can arise due to a decline in property values, high loan-to-value ratios, or inadequate equity.

Negative equity is a difficult situation for homeowners. They often have little control over the value of their property, but it can limit the homeowner's remortgaging options, as lenders are generally unwilling to lend more than the property's value. It can also make it challenging to switch to a new mortgage deal. So the homeowner may be required to bring additional funds to the table to cover the shortfall.

Lender's Criteria

Lenders may have different eligibility requirements, such as minimum income thresholds, credit score benchmarks, or maximum loan-to-value ratios. Homeowners need to research lenders' criteria and identify lenders that align with their financial profile and goals.

Property Type Restrictions

The type of property you own can affect your remortgaging options, as lenders may have preferences or restrictions regarding certain property types.

Property types that may pose challenges for remortgaging include:

  • Leasehold properties
  • Ex-local authority homes
  • Properties with non-standard construction
  • House bought below market value

Lenders may perceive these properties as higher risk due to factors such as leasehold restrictions, historical issues, or potential maintenance issues.

What Can You Do If You Can’t Remortgage?

If you can’t remortgage the first thing to do is to speak to your lender. Discover why your remortgage application was not accepted and ask them for advice about how to resolve the situation.

The lender might have concerns about your affordability and you can become a mortgage prisoner, stuck on unfavourable terms. In this case, your situation may be difficult to improve. You could even enter into arrears and be evicted from your home by your lender.

At Homeowner Management Services, we regularly encounter people who enter into mortgage arrears and are concerned about what to do. Our expert guidance helps people who are in danger of being repossessed.

If you need help to stop repossession then speak to our friendly team, 24/7. We are here to help.

Contact us now!