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Assessing Remortgage Applications

May 20, 2008
If your home loan is costing you more money than it should or if you are nearing the end of a fixed interest rate or discounted rate period you may be preparing to remortgage. Switching mortgages is quite common in the UK with most home owners remortgaging on average about every seven years.

Exactly which home loan product you remortgage to will depend on a number of factors. This includes your employment status, income, credit history, the size of the mortgage you will require, and the type of property you own. More recently an additional factor has entered the equation - the availability of remortgage products.

Lenders consider remortgage applications on a case by case basis. There is no single criterion for assessing applications meaning that many different factors will contribute to the success of failure of each remortgage application. First and foremost an applicant's employment status and level of income will be assessed if the remortgage relates to an owner-occupied home. This criterion is substituted for a rental income assessment for buy-to-let properties.

Lenders need to be as sure as they can be that the applicant will be able to fund their monthly mortgage payments throughout the duration of the term of the home loan. A stable job and a regular income will go a long way towards ensuring success in a remortgage application. Lenders will also like to see a level of income that can easily support the monthly mortgage payments. Each lender and product will have their own criteria, but applicants should expect to only require a maximum of one third of their monthly income to cover their mortgage payments.

An applicant's credit history and current credit score will also be assessed. The higher the score the more likely an applicant is to receive a remortgage offer. Applicants with low credit scores will not be automatically excluded from remortgaging but they will find it more difficult to find a product to suit their needs. Remortgage products do exist for people with impaired credit files however they may contain higher interest rates and hefty fees. Each lender will have their own rules regarding credit scores.

Another contributing factor is the size of the mortgage required. Most products have upper limits in terms of the size of the loan that can be approved. The larger the size of the remortgage required the fewer the number of products there are to choose from. Properties that are low in value and therefore require a smaller mortgage will therefore have plenty of products available.

Similarly, the type of property being refinanced can affect a remortgage application. Some lenders steer clear of flats above shops and unusual properties as they can be difficult to value. Therefore, the more standard a property is, the more likely a remortgage application is to be successful.

Finally, recent occurrences in the finance markets have forced lenders to withdraw thousands of remortgage products from the market. For those products that remain available to home owners, lenders have tightened their assessment criteria. This means that people looking to remortgage their homes are also restricted by the wider economy and turbulence of the financial markets.
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