Need to remortgage but can't?

Published 03rd Apr 2008

Are you stuck on your lender’s standard variable rate (SVR) and can’t remortgage? Are you about to come to the end of your special deal and can’t get another one?

If this applies to you then you’re not alone. Because of the much-discussed ‘credit crunch’ lenders have tightened up their lending criteria; they are also asking for bigger deposits for their loans. In fact, over the past year more than a third of mortgage lenders have reduced the maximum loan to value they are prepared to offer. 125% mortgages are a thing of the past and, whilst you may find a 100% mortgage, you will have to pay a great deal more for it.

While this may affect first-time buyers and those looking to move more than you, this more cautious attitude to risk could stop you remortgaging. Because lenders are now looking for higher deposits, those of you who couldn’t put down a deposit of 10% or more when you bought your home may have problems. And those of you who only managed to buy by taking out a 125% mortgage in the first place may not be able to find any lender who will be able to help.

Before you start to panic, you may be ok. If you are coming to the end of your special deal, the chances are that you took it out a year or – even better- a couple of years ago. Depending on where you live, you may find that your home is worth a lot more now than it was then and you have built up some equity (or profit) in your house. If you are just remortgaging to get a better rate and avoid your lender’s SVR then you may find you have enough equity in the house to be able to get a mortgage. If you are remortgaging to release some of that equity then you will find it difficult.
However, if your home hasn’t gone up in value since you took the mortgage out, don’t despair – there are options open to you:
* Talk to your existing lender. Just because you are trying to change your mortgage doesn’t mean that you have to change your lender. You have a relationship with your lender and you may find them to be more understanding. Many lenders have the same rates for their existing borrowers as for new borrowers so the rate you’re offered is likely to be as competitive as you’re going to get anyway. If you don’t quite meet their new lending criteria then they may be able to give you alternative options.

* There are lenders who have 100% mortgages which you may be able to remortgage to. However, you will most likely find that the interest rate you end up paying will be higher than the rate you would pay if you found another 5-10%. You may even find that it is more expensive than your lender’s SVR! Also, your choices will be limited as the number of lenders offering a mortgage with no deposit has reduced to a handful and this is reducing every day.

* Go and see a financial adviser and explain your predicament. They may have special deals available to borrowers in the same position and know what to do. They may be able to suggest other options if they can’t help you.

* Talk to your family and explain your predicament. If you are incredibly lucky they may be able to lend you a few grand and all your problems will be over!

* Another option is that you take out a personal loan to cover the extra money you need to satisfy a lender’s loan-to-value requirements. Borrowing money like this and taking on the extra debt should be a last resort, although some loans may have an interest rate lower than the mortgage rate you would end up paying on the SVR.

Also, if you already have loans, credit cards or store cards you may find that your credit rating means you can’t get a loan. And if you do take out a loan, you may then find that your chosen lender rejects your mortgage application anyway because they believe you won’t be able to meet all your repayments on the mortgage, plus credit cards, plus loan.

If you still can’t remortgage and end up on your lender’s SVR then explain to them that you are finding the higher rates difficult to afford. Hopefully interest rates and SVRs will come down during the year. In the meantime, you may be able to extend the length of your mortgage term; this will cost you more in the long term but may help you make the repayments.

You may also be able to switch to an interest-only mortgage which will reduce your monthly payments because you are just paying back the interest on the amount you borrowed, not the amount itself. This should always be a last resort as you will have to pay your lender back at some point but it can help for a year or two.
By Nia Williams

Source: ' What Mortgage '

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