What Do Lenders Check When You Remortgage

When considering remortgaging, it's crucial to understand what lenders assess during the process. Remortgaging, or switching your existing mortgage to a new deal either with your current lender or a different one, can potentially offer better interest rates and more favorable terms. However, lenders conduct thorough checks to evaluate your eligibility and creditworthiness. This article will delve into the key aspects lenders examine when you apply for a remortgage, including your credit history, income, property value, and outstanding mortgage balance. By understanding these factors, you can better prepare for the remortgaging process and increase your chances of securing a suitable deal.

What Do Lenders Check When You Remortgage?

When you decide to remortgage your property, lenders will typically conduct a thorough assessment of your financial situation to determine your eligibility for a new mortgage deal. This process involves several key checks, which are crucial in ensuring that you can afford the mortgage and that the lender is making a sound investment.

Credit History and Score

One of the first things lenders look at is your credit history and credit score. This provides them with a snapshot of your financial behavior, including how you've managed debts in the past. A higher credit score indicates that you're a lower risk, which could lead to better mortgage rates. Lenders will obtain your credit report from one or more of the major credit reference agencies.

Employment and Income

Lenders need to verify your employment status and income to ensure you can afford the monthly payments. This typically involves checking your payslips, P60, and bank statements. For self-employed individuals, lenders may require additional documentation such as tax returns and business accounts.

Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is another critical factor. It compares your monthly debt payments to your monthly income. A lower DTI ratio suggests you have more disposable income available to cover mortgage payments. Lenders usually have specific thresholds for DTI ratios, above which they may be hesitant to lend.

Property Valuation

Lenders will also assess the value of your property. This is to ensure that the property provides adequate security for the mortgage. They typically arrange for a professional valuation to be carried out. The loan-to-value (LTV) ratio, which is the mortgage amount relative to the property's value, also plays a significant role in determining the interest rate you'll be offered.

Affordability Assessment

Lastly, lenders conduct an affordability assessment to ensure you can afford the mortgage payments, not just now but also in the future. This involves evaluating your income, expenses, and any foreseeable changes to your financial situation. Lenders use this information to gauge whether you could still afford the payments if interest rates were to rise or if your circumstances changed.

FAQ

What factors do lenders consider when you apply for a remortgage?

Lenders take into account several key factors when you apply for a remortgage. The most significant of these is your credit score. This is a numerical representation of your creditworthiness, based on your credit history. A higher score indicates that you've managed your credit well in the past, which makes you a lower risk to the lender. They will also look at your income and employment status to ensure you have a stable source of income to make the monthly repayments. Your debt-to-income ratio is also important, as it shows how much of your income is already committed to debt repayments. Finally, the lender will consider the value of your property and the equity you have in it, as this will determine the loan-to-value ratio of the new mortgage.

Does the type of property I own affect my ability to remortgage?

Yes, the type of property you own can indeed affect your ability to remortgage. Lenders have different criteria for different types of properties. For instance, some lenders may be hesitant to lend on non-standard properties such as those with thatched roofs, or properties of non-standard construction like concrete or steel framed houses. They might also have restrictions on lending for leasehold properties, particularly if the lease length is short. Moreover, if your property is in a poor state of repair, some lenders may refuse to lend until necessary repairs are carried out.

How does my loan-to-value ratio impact my remortgage options?

Your loan-to-value (LTV) ratio is a crucial factor that lenders consider when assessing your remortgage application. This is the percentage of your property's value that you want to borrow. Generally, lenders view lower LTV ratios more favorably as they represent a lower risk. If you have a lower LTV, you're likely to have access to more competitive interest rates and a wider range of mortgage products. Conversely, if you have a high LTV, you may find your options more limited and may have to pay higher interest rates.

Can I remortgage with a bad credit score?

While having a bad credit score can make remortgaging more challenging, it's not always impossible. Some lenders specialize in offering mortgages to people with poor credit histories, although these often come with higher interest rates and may require a larger deposit or more equity. These lenders will still assess your affordability for the mortgage, looking at factors like your income, employment, and other debts. Improving your credit score before applying for a remortgage can give you access to better deals and save you money in the long run.