House Doctor: 'I'm struggling to remortgage though I have lots of equity. How can this be?'
Friday 20 August 2010
Question: I can't seem to remortgage to move house for love nor money, having tried two lenders – with a third midway through application. It's very surprising as I've £48,000 in equity and £12,000 savings to put into the next property which should give me a healthy loan-to-value of roughly 75 per cent. The only downside that I can think of is a £2,000 overdraft that I don't often climb out of – and three unauthorised overdraft penalties in 12 months. But that's the only debt I have and I earn £30,000 a year. What am I doing wrong?
Julianne Fretton, Gateshead.
Answer: Would you lend money to somebody perpetually in debt who – from time to time – sneakily pinched more than agreed from a bank account? Probably not, I suspect, and it's likely that it's for the same reason that lenders are pulling down the shutters on your application.
"Exceeding your overdraft and incurring unauthorised penalties could ring warning bells for the lender when they ask to see your bank statements," says Melanie Bien at broker Private Finance.
Your overdraft probably isn't the only issue, adds David Hollingworth at broker London & Country. In today's mortgage climate of chary lenders, tight credit and wavering house prices, banks and building societies will look to your overall affordability instead of calculating how much to lend based on a multiple of your income. "From details you've given us, the roughly £200,000 remortgage you're aiming for at 3 per cent over 25 years would cost you £948 a month – roughly half your disposable income."
Those kinds of figures will make lenders wince, even with your £60,000 deposit – effectively you're asking for six times your salary. There's also your credit score: the two recent rejections will be flagged up by credit-rating agencies, warns Bien, "and make lenders wary of future applications". It's worth checking your credit report at Experian, Equifax or Callcredit. Double-check there are no mistakes or fraudulent behaviour marked on it, since these could be damaging your applications; if so, ask them to lodge a "dispute notice" while you sort it out.
Although the outlook might look bleak, you do have two options. First, stop applying directly to lenders – use a mortgage broker instead, who will try to place you with banks and building societies most likely to take you on. Second, a dose of better money-management could work wonders.
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