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Can I get a new mortgage with poor credit?

A lot of clients have asked us about mortgage fixes when they have a poor credit history or simply a lot of other debt:

Example A: We are in a Debt Management Plan and we were told it would make it very hard to remortgage. So we are now on Santander’s SVR and it’s over 7%. Can we really just ask them for a new fix and they won’t say no?

Example B: I’m worried about talking to Nationwide when our current mortgage fix ends. We have a lot of credit card debt from my wife’s maternity leave and now childcare costs.

We can’t say this will never be a problem, but for the large majority of people who already have a mortgage, getting a new fixed rate will not be a problem unless they have mortgage arrears.

Most lenders do not check affordability for new fix rates if you do not have arrears

Treasury statement

In December 2022 there was a meeting between the Treasury and mortgage lenders. The Treasury says:

At the meeting, lenders committed to helping all their customers by enabling customers who are up to date with payments to switch to a new competitive, mortgage deal without another affordability test.

This isn’t just a few lenders, The Treasury says it applies to 97% of the mortgage market, where customers don’t have arrears and not seeking to borrow more or change their repayment type or term.

Why don't they check your affordability?

When you apply for a mortgage, the lender is taking a long-term risk on you – 25 or more years. So they make detailed checks.

But when your fixed rate ends, your mortgage doesn’t – it continues for the rest of the term at your lender's Standard Variable Rate (SVR) instead. (some lenders have a slightly different name for their variable rate but SVR is the most common.)

The lender can’t decide they don’t want to lend to you anymore when your fixed rate has ended. They can’t ask you to repay it or make you sell the house unless you have mortgage arrears. The only question is what interest rate they will charge.

And lenders have to treat their customers fairly. If you are paying £550 a month now, which would be £900 on a new fix, it makes no sense to say that £900 isn’t affordable so you will have to pay £1150 on the lender’s higher SVR.

Who will have problems getting a new fix?

The people that are will have problems getting a new fix are:

  • mortgage prisoners, where their current lender doesn’t offer new mortgages. MSE has a good round-up of the options mortgage prisoners have.

  • people with arrears. If you are already in arrears then a new fix at a higher rate is unlikely to solve your problems.

  • where you want to change some details about your mortgage – the amount, the term, the named borrowers, etc. These are new mortgages, not a simple new fix on the same mortgage. Here the lender will usually do an affordability check although sometimes it isn’t necessary, for example, if you want to extend the term it will still finish before your retirement date.

  • people who have an interest-only mortgage that is ending. You do not only want a new fix, you need a new mortgage and that will involve affordability checks.

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