Bad Credit Remortgage Rates

How Bad Credit Affects Remortgage Rates

Interest rates on mortgages are fundamentally a reflection of risk. Lenders charge higher rates to borrowers they consider more likely to default on their payments. When you have bad credit, lenders view you as a higher risk, which is why the rates available to you are typically higher than those advertised for borrowers with excellent credit.

The risk-based pricing model

Specialist bad credit lenders use risk-based pricing, which means the rate you are offered is tailored to your specific risk profile. The worse your credit history, the higher the rate. Conversely, if your credit issues are minor or historical, the premium you pay may be relatively modest.

The main factors that influence the rate you will be offered include:

• Type of adverse credit — Different types of credit issues carry different risk weightings. Missed payments are generally viewed as less serious than defaults, which in turn are considered less severe than CCJs, IVAs, or bankruptcy. The type of adverse credit you have is one of the biggest determinants of the rate you will be offered.
• Severity and frequency — A single missed payment will have less impact on your rate than multiple missed payments across different accounts. Similarly, one small default is viewed differently from several large defaults. Lenders consider the overall pattern rather than individual events in isolation.
• How recent the issues are — Recent adverse credit is viewed much more seriously than historical credit issues. A default from five years ago will attract a lower rate premium than one from six months ago. Most lenders become progressively more flexible as time passes since the adverse event.
• Whether the issues are satisfied — Satisfied defaults and CCJs (where the outstanding amount has been paid) are viewed more favourably than unsatisfied ones. If you have any unsatisfied adverse credit markers, paying them off before applying could improve the rate you are offered.

Understanding where your credit history falls on this spectrum can help you set realistic expectations about the rates you might achieve.

The SVR comparison

While bad credit rates are higher than the best deals available to borrowers with clean records, it is important to compare them against your current rate rather than the market-leading products you see advertised. If you are on your lender's standard variable rate (SVR), which can be anywhere from 5% to 8% or more, even a bad credit remortgage deal at a few percentage points above the best fixed rates could save you a considerable amount each month.

What Rates Can You Expect With Different Types of Bad Credit?

The rates available to borrowers with bad credit vary significantly depending on the nature of the adverse credit. While exact rates change regularly in line with market conditions, understanding the relative premium for different types of credit issues can help you gauge what to expect.

Late or missed payments

If your only credit issues are a small number of late or missed payments, particularly if they occurred more than 12 months ago, you may find that the rate premium is relatively modest. Many mainstream lenders will still consider your application, and you may be looking at rates just slightly above the best deals on the market. The exact premium depends on how many payments were missed, how recently, and what type of credit they related to.

Defaults

Defaults carry a larger rate premium, but the impact varies based on the size, age, and whether they have been satisfied. A single, small, satisfied default from three or more years ago may attract only a moderate premium. Multiple, recent, or unsatisfied defaults will push rates higher. Specialist lenders who accept defaults typically offer rates that are noticeably above mainstream products but still substantially below most SVRs.

County court judgements

CCJs are treated seriously by lenders, and the rate premium reflects this. Small, satisfied CCJs that are over two years old tend to attract lower premiums than large, recent, or unsatisfied ones. The rates available will also depend heavily on your LTV ratio, with borrowers who have more equity typically accessing better rates.

Individual voluntary arrangements

Borrowers with IVAs, whether current or historic, will find that rates are significantly higher than for those with clean credit. However, lenders who accept IVAs do exist, and the rates tend to improve substantially once the IVA has been discharged for two or more years. Rates for borrowers with recently completed IVAs are typically among the higher end of the specialist market.

Bankruptcy

Bankruptcy carries the highest rate premium of all adverse credit types. Most lenders require a minimum of three to six years since discharge before they will consider an application, and the rates offered during the early years after discharge tend to be the highest in the specialist market. However, as time passes and you rebuild your credit, rates come down progressively.

It is worth noting that these are general guidelines. The actual rate you are offered will depend on the full picture of your circumstances, including your income, LTV, and other factors. A specialist broker can give you a more precise indication based on your individual situation.

The Role of LTV in Bad Credit Remortgage Rates

Your loan-to-value ratio is one of the most powerful levers you have when it comes to influencing the rate you are offered, and this is especially true when you have bad credit.

How LTV affects your rate

The relationship between LTV and interest rates is straightforward: the lower your LTV, the better the rate you will be offered. This is because a lower LTV means the lender has more security. If you default and the lender needs to repossess and sell the property, a lower LTV makes it far more likely they will recover the full loan amount.

For borrowers with bad credit, the impact of LTV on rates is even more pronounced than for those with clean credit. This is because lenders are already taking on additional risk by lending to someone with adverse credit, and a lower LTV helps offset that risk. The difference in rate between 60% LTV and 80% LTV for a bad credit borrower can be substantial.

LTV bands and rate tiers

Most lenders structure their rates in LTV bands. Common bands include:

• Up to 50% LTV — The best rates available for your credit profile
• Up to 60% LTV — Very competitive rates, often close to the 50% band
• Up to 75% LTV — Good rates, widely available from most specialist lenders
• Up to 80% LTV — Rates start to increase more noticeably
• Up to 85% LTV — Higher rates, with fewer lenders available for more serious credit issues
• Up to 90% LTV — The highest rates and fewest options, typically only available for minor credit issues

Crossing from one LTV band to the next can make a meaningful difference to your rate. For example, reducing your LTV from 76% to 74% might seem like a small change, but it moves you from the 80% band to the 75% band, which could result in a rate reduction that saves you hundreds of pounds per year.

Improving your LTV position

If you have time before your remortgage, consider strategies to reduce your LTV. Overpaying on your mortgage, making a lump sum payment, or waiting for property values to increase can all help. Even a relatively small improvement in your LTV can translate into a noticeably better rate when you have adverse credit.

How to Find the Best Bad Credit Remortgage Rates

Finding the best rates when you have bad credit requires a different approach to the standard remortgage process. Here is how to go about it effectively.

Use a specialist whole-of-market broker

This is the single most important step you can take. A specialist broker has access to the entire lending market, including products that are not available to borrowers who approach lenders directly. They know which lenders offer the most competitive rates for different types of adverse credit and can match your specific circumstances to the best available deal. Many borrowers who have tried to find deals on their own discover that a broker can access rates that are significantly better than anything they found independently.

Do not rely on comparison websites

Standard mortgage comparison websites typically show products aimed at borrowers with good credit. The headline rates you see advertised are unlikely to be available to you if you have adverse credit. These sites can be misleading and may not show the specialist products that are actually most suitable for your situation.

Compare the total cost, not just the rate

When comparing bad credit remortgage deals, look at the total cost over the deal period rather than focusing solely on the interest rate. Consider arrangement fees, which can sometimes be added to the loan. A product with a slightly higher rate but no fee might work out cheaper overall than one with a lower rate but a large upfront fee. Ask your broker to calculate the total cost of each option to make a like-for-like comparison.

Consider the deal length carefully

If you are confident that your credit will improve over the next year or two, a shorter fixed rate period might allow you to switch to a better deal sooner. However, if you prefer payment certainty or are unsure about how quickly your credit will recover, a longer fix protects you from rate increases and gives you more time to rebuild your credit before your next application.

Look at the whole package

Some lenders offer additional benefits such as free valuations, free legal work, or cashback on completion. These extras can add up to significant savings and should be factored into your comparison. A deal that appears more expensive on rate alone might actually be more affordable when you account for these benefits.

Get multiple quotes

Your broker should be able to present you with several options from different lenders. Having multiple quotes allows you to compare and choose the deal that offers the best value for your circumstances. Do not feel pressured to accept the first quote you receive.

Reducing Your Bad Credit Remortgage Rate Over Time

One of the most important things to understand about bad credit remortgage rates is that they are not permanent. As your credit improves over time, you can progressively access better rates each time you remortgage. Here is how to plan for this.

The credit improvement trajectory

Most adverse credit markers remain on your credit file for six years. As they age, their impact on your score and on lenders' decisions diminishes. This means that every year that passes without new credit problems improves your position. After six years, the entries are removed entirely, and if you have maintained a clean record during that time, you should be able to access near-mainstream rates.

The step-down approach

Many borrowers with bad credit use what is sometimes called a step-down approach. This involves taking a specialist bad credit deal now, improving their credit over the next two to three years, and then remortgaging again at a better rate. Some borrowers go through two or three remortgages over a six-year period, with each one offering a better rate than the last as their credit file improves.

For example:

• Year one — Remortgage with a specialist lender at a higher rate. Begin actively improving your credit score.
• Year three — Remortgage again, this time accessing a wider range of lenders and a lower rate as your credit issues are now older and your payment record is strong.
• Year five or six — Remortgage onto a near-mainstream deal as the adverse credit entries drop off your file.

Actions to accelerate rate improvement

To move down the rate ladder as quickly as possible:

• Make every mortgage payment on time — This is non-negotiable. A perfect mortgage payment record is one of the strongest signals to future lenders.
• Build equity — Make overpayments where possible to reduce your LTV, which directly improves the rates available to you at your next remortgage.
• Maintain a clean credit record — Avoid any new missed payments, defaults, or other adverse markers. Even one slip can set back your progress significantly.
• Use credit responsibly — Use a credit card for small, regular purchases and pay it off in full each month to build a positive payment history.
• Work with a broker throughout — A broker who understands your long-term plan can advise you at each stage on the optimal time to remortgage and which lenders offer the best rates for your evolving credit profile.

By thinking of your bad credit remortgage as the first step in a journey rather than a permanent arrangement, you can stay motivated and focused on the improvements that will lead to better rates in the future.

Common Questions About Bad Credit Remortgage Pricing

Many borrowers have questions about how bad credit remortgage rates are structured and what influences the pricing. Here are some of the most common areas of confusion, explained clearly.

Why do rates vary so much between lenders?

Each lender has its own risk appetite, funding model, and target market. Some specialist lenders focus on borrowers with minor credit issues and offer rates close to mainstream, while others specialise in more complex cases and charge higher rates to compensate for the increased risk. This variation is actually good news for borrowers, as it means there is likely a lender whose risk appetite aligns with your specific circumstances.

Are arrangement fees higher for bad credit mortgages?

Some specialist lenders do charge higher arrangement fees, but this is not universal. Some offset their risk entirely through the interest rate, while others use a combination of rate and fee. When comparing products, always calculate the total cost including fees to get an accurate picture. Your broker can help with this calculation.

Can I negotiate a better rate?

Unlike some consumer finance products, mortgage rates are generally not negotiable in the traditional sense. However, a broker can sometimes access exclusive rates or special offers that are not available to borrowers who apply directly. They may also be able to identify lenders who are currently offering competitive deals to attract new business.

Will my rate go down automatically as my credit improves?

No, your rate will not automatically adjust as your credit improves. To benefit from an improved credit profile, you will need to remortgage onto a new deal. This is why planning your remortgage strategy around your credit improvement timeline is so important.

Is it better to pay a higher rate or a higher fee?

This depends on how long you plan to keep the mortgage before remortgaging again. If you intend to remortgage within two to three years as your credit improves, a lower fee with a higher rate might be more cost-effective, as you will not be paying the higher rate for long. If you plan to keep the deal for longer, a higher fee with a lower rate could save you more over time. Your broker can model both scenarios for you.

Do bad credit rates track the Bank of England base rate?

Specialist bad credit rates are influenced by the base rate, but the relationship is less direct than with mainstream products. Specialist lenders have their own funding costs and risk models, which means their rates may not move in perfect lockstep with base rate changes. However, broad trends in the interest rate market do affect the rates available across the specialist market.

Understanding how bad credit remortgage pricing works puts you in a stronger position to make informed decisions and ensures you are not paying more than necessary for your circumstances.