Remortgage With Arrears in the Last 12 Months

Why Recent Arrears Make Remortgaging Particularly Difficult

Mortgage arrears within the last 12 months present a specific challenge because they suggest your financial difficulties are either ongoing or have only just been resolved. Lenders are naturally cautious about taking on borrowers who may still be at risk of falling behind on payments.

From a lender's perspective, recent mortgage arrears raise several red flags. The most obvious is the question of whether you can reliably make mortgage payments going forward. If you struggled to meet your payments in the last year, what has changed to ensure you will manage them in the future? This is the central question that your application needs to answer convincingly.

Recent arrears also affect your credit score more significantly than older ones. Credit scoring models weight recent activity more heavily than historical data, meaning that arrears from the last 12 months will have a greater negative impact on your score than identical arrears from three or four years ago. A lower credit score further limits the number of lenders willing to consider your application.

The severity of the recent arrears is also a major factor. A single late payment three or four months ago, now fully resolved, will be treated very differently from a situation where you were three months or more behind and have only just cleared the balance. Lenders use specific metrics to categorise the severity of arrears, and these directly determine which products you may be eligible for.

It is also worth noting that some lenders have absolute policy rules around recent arrears. For example, a lender might have a rule that they will not accept any applicant with mortgage arrears in the last six months, regardless of the circumstances. No amount of explanation or supporting evidence can override these criteria, which is why knowing which lenders have which policies is so important.

Despite these challenges, the specialist lending market recognises that recent arrears can result from temporary and resolvable circumstances. If you can demonstrate that the cause has been addressed and your finances are now stable, there are lenders who will give your application serious consideration.

Which Lenders Consider Applicants With Recent Arrears?

The lending market for borrowers with arrears in the last 12 months is firmly in specialist territory. Mainstream high street lenders will almost universally decline applications with recent mortgage arrears, so you will need to look to the specialist and adverse credit sectors of the market.

Specialist lenders who may consider recent arrears typically fall into several categories. First, there are dedicated adverse credit lenders who specifically design their products for borrowers with challenging credit histories. These lenders have underwriters trained to assess complex cases and make decisions based on individual circumstances rather than rigid automated scoring.

Second, some building societies have more flexible criteria than banks and may consider applications with recent arrears on a case-by-case basis. Building societies are mutual organisations owned by their members, and some take a more personal approach to lending decisions. However, their criteria still have limits and not all building societies operate in the adverse credit space.

Third, there are specialist divisions of larger lending groups that handle applications that do not fit the mainstream criteria of their parent company. These can offer a middle ground between pure specialist lenders and the mainstream market.

The number of lenders available to you will depend on exactly how recent your arrears are and how severe they were. If your last missed payment was 11 months ago and you have made all payments since, you will have more options than if you missed a payment last month. Similarly, a single late payment attracts far less scrutiny than a period of sustained arrears.

It is critical to work with a specialist broker who has current knowledge of which lenders are accepting applications with recent arrears and what their specific criteria require. The specialist market changes frequently, and a broker with up-to-date relationships across the sector can identify options that would not be apparent from general research.

Key Criteria for Remortgaging With Arrears in the Last 12 Months

Specialist lenders who consider applications with recent mortgage arrears apply careful scrutiny to every aspect of your circumstances. Meeting their criteria requires thorough preparation and a clear understanding of what they are looking for.

Arrears must be cleared. While a very small number of lenders may consider minor current arrears, the overwhelming majority require that your mortgage payments are fully up to date before they will consider your application. Clearing your arrears and building at least a few months of clean payments is the essential first step.

Maximum number of missed payments. Each lender sets specific limits on how many payments can have been missed in the last 12 months. Some will accept up to one missed payment, others up to two, and a few may accept three or more. The fewer missed payments you have, the more options are available.

Months since last arrears event. Many lenders specify a minimum number of clear months since your last missed payment. Requirements of three to six clear months are common among specialist lenders who accept recent arrears. Building as long a run of clean payments as possible before applying will improve your options.

Equity requirements. With recent arrears, lenders typically require more equity than for a standard application. Maximum LTV ratios of 65% to 75% are common, meaning you need at least 25% to 35% equity. Some lenders may accept higher LTVs for minor recent arrears, while more severe cases may be restricted to 60% LTV or less.

Explanation and evidence. A detailed written explanation of why the arrears occurred is almost always required. Lenders want to understand the cause and be reassured that it has been resolved. Supporting evidence strengthens your case significantly. This might include a letter confirming your return to work after illness, evidence of a new job after redundancy, or confirmation that a temporary financial problem has been resolved.

Current affordability. Demonstrating that you can comfortably afford the new mortgage payments is essential. Lenders will carry out a full affordability assessment and may apply more conservative assumptions for applicants with recent arrears. If the remortgage would actually reduce your monthly payments compared with your current arrangement, this is a strong positive factor.

Building the Strongest Possible Application

When your options are limited by recent arrears, maximising the strength of every other aspect of your application becomes critically important. Here is how to present the strongest possible case to a specialist lender.

Document everything thoroughly. Gather every piece of evidence that supports your application. This includes your bankruptcy or arrears history documentation, evidence of the circumstances that caused the arrears, proof that those circumstances have been resolved, and records of all payments you have made since clearing the arrears. The more evidence you provide, the easier you make it for the underwriter to approve your case.

Write a compelling explanation letter. Your explanation of the arrears is one of the most important documents in your application. It should be honest, specific and focused. Explain exactly what happened, when it happened, how long it lasted, what you did to resolve it, and what has changed to prevent it happening again. Avoid vague or generalised statements and instead provide specific details and dates.

Demonstrate current financial stability. Provide clear evidence of your current financial position. Recent payslips showing stable employment, bank statements showing regular income and responsible spending, and evidence that all current bills and commitments are being paid on time all help to build a picture of financial stability.

Address any other credit issues. If you have any other adverse credit entries alongside your mortgage arrears, address these proactively. Satisfy any outstanding defaults or CCJs if possible, pay down credit card balances, and ensure all current credit commitments are being managed perfectly. The fewer issues on your credit file, the better your chances.

Be realistic about LTV. If you have significant equity in your property, make the most of it. Applying at a lower LTV than the maximum available can improve your chances of approval and may secure a better rate. Do not borrow more than you need, as a lower loan amount relative to your property value reduces the lender's risk.

Work closely with your broker. Your broker is your advocate in the application process. Share all relevant information with them openly and honestly, including any concerns you have about your application. They can only help you effectively if they have a complete picture of your circumstances. Their experience with similar cases will be invaluable in packaging your application for the best possible outcome.

Rates, Terms and Costs to Expect

Being realistic about the rates, terms and costs associated with remortgaging when you have had arrears in the last 12 months will help you assess whether proceeding now makes financial sense or whether waiting would be more advantageous.

Interest rates for borrowers with recent mortgage arrears are typically at the higher end of the specialist market. You can expect to pay somewhere between three and six percentage points above the best mainstream rates, though the exact premium depends on the severity of the arrears, your equity position, and the overall strength of your application.

To put this in context, if mainstream fixed rates are around four percent, a specialist deal for someone with recent arrears might be in the range of seven to ten percent. While this is significantly more expensive than a mainstream product, it may still be cheaper than the SVR you are currently paying, which is the relevant comparison.

Fixed rate terms of two years are the most commonly available option. This is advantageous because it means you can remortgage again in two years when your arrears will be further in the past and your credit profile will have improved, potentially qualifying you for a significantly better deal at that point.

Arrangement fees are typically higher with specialist lenders, often ranging from 1% to 2.5% of the loan amount. These can usually be added to the mortgage, though this increases your overall borrowing. Some specialist lenders also charge higher valuation fees or require a more detailed property valuation.

Broker fees for adverse credit cases tend to be higher than for standard applications, reflecting the additional work involved in finding a suitable lender and packaging a complex application. Typical broker fees for recent arrears cases range from 500 to 1500 pounds, though some may be higher. Always agree fees upfront and understand exactly what you will be charged.

Your broker should provide a comprehensive cost analysis comparing the total cost of the specialist remortgage deal, including all fees, with the total cost of remaining on your current arrangement over the same period. This comparison will tell you clearly whether remortgaging now is worthwhile or whether waiting is the better financial decision.

When to Remortgage and When to Wait

One of the most important decisions you face with recent arrears is whether to remortgage now at higher rates or wait for your options to improve. There is no single right answer, as it depends entirely on your individual circumstances.

Consider remortgaging now if: Your current SVR is very high and a specialist deal would significantly reduce your monthly payments. The monthly savings need to outweigh the higher fees and rates of a specialist product. If you are struggling with your current payments, reducing them through a remortgage could prevent further arrears and protect your home.

Consider remortgaging now if: Your current deal is about to expire and you would move onto an even higher SVR. Acting before the transition can save you money even if the specialist rate is not as competitive as a mainstream deal would be.

Consider waiting if: Your current payments are manageable and you are not paying an excessively high rate. Every month that passes moves your arrears further into the past, improving your options and potentially allowing you to access significantly better rates. Six months of clean payments can make a substantial difference to the deals available.

Consider waiting if: You are very close to a threshold that would open up more lender options. For example, if your last arrears event was ten months ago, waiting two more months would move it past the 12-month mark, which is a key criterion for many additional lenders.

Consider a product transfer first. Before looking at a full remortgage with a new lender, check whether your current lender will offer you a new deal. Product transfers to existing customers often involve less rigorous credit checks and could offer a way to reduce your rate without the complexity and cost of a full remortgage application.

Your specialist broker can help you weigh up these factors and make an informed decision based on your specific financial position. They can model different scenarios showing the financial impact of remortgaging now versus waiting three, six or twelve months, helping you choose the approach that saves the most money overall.