4 months into a 2 year fixed - should I switch?

XEO25

Hi, looking for advice before I speak to a broker please. 

I'm wondering whether I can get a better mortgage rate and borrow more - either with my existing provider (Kensington) or a new lender - even though I'm only 4 months into a 2 year fixed.

I bought my first home in Dec 2021 with a 2 year fixed (around 5.5%) with Kensington. During the last 6 months of my fixed, the best my broker could find me was a remortgage (2 year fix) with Kensington at 7.46% (SVR around 9%). I'm now 4 months into that new fix. I think it's technically a product port. Early repayment charge is £5k. Mortgage is £175k on a £250k house.

I think the rejections with high street lenders were due to:

- Having 20k (£1,500 monthly cost) worth of personal debt (vs income of £65k, FT employee)

- Still having 3 defaults on my credit file (<£500 each, credit cards)

- No disposable income, frequently maxed out.

Today, thanks to help from my family, the debt is now completely clear. Also, the 3 defaults have dropped off the credit file as it has passed 6 years. Credit file now shows £0 debt other than the mortgage and no bad marks (late/missed payments etc). Disposable income after bills and living is around £1k.

Based on the above, would it make sense to try to remortgage, especially as I want to borrow more for an extension?

A new mortgage at 5% (including the £5k ERC) would cost around £875 per month (vs £1.2k currently). I'm assuming the existing/new lender would allow the ERC to be added to the mortgage?

Borrowing and additional £50k - taking the mortgage to £225k (90% LTV) - would cost around £1.2k per month, which is the same I'm paying now, and a price I'm happy to pay to release the £45k (to be spent on extending the property). 

Does this sound like a reasonable plan, and are lenders likely to go with it? Are there any particular lenders anyone would suggest?

Thanks very much 

housebuyer143

Firstly, you mention adding the ERC to the mortgage, you can't do that, so that will need to be paid off when you remortgage. You can of course technically add it to your new mortgage by borrowing more. 

You are aiming for 90% LTV which means you are limiting your lenders a lot and increasing the rate you pay. 
How much do you earn? Will you even be able to get a loan for £225k? I know it's the same as you are currently paying with Kensington but I imagine you did a product switch recently and affordability hasn't been reasssed at the new rates? If you have no disposable income on what you pay now, it seems surprising you would be able to borrow what you intend, but without more info no one can tell you. 

It might be worth you chatting to a broker and running through the numbers based on real figures and products.

XEO25

housebuyer143 said:

Firstly, you mention adding the ERC to the mortgage, you can't do that, so that will need to be paid off when you remortgage. You can of course technically add it to your new mortgage by borrowing more. 

You are aiming for 90% LTV which means you are limiting your lenders a lot and increasing the rate you pay. 
How much do you earn? Will you even be able to get a loan for £225k? I know it's the same as you are currently paying with Kensington but I imagine you did a product switch recently and affordability hasn't been reasssed at the new rates? If you have no disposable income on what you pay now, it seems surprising you would be able to borrow what you intend, but without more info no one can tell you. 

It might be worth you chatting to a broker and running through the numbers based on real figures and products.

Thanks.

I earn £67k and have £1k worth of disposable income per month

ACG

This might sound judgey, it really isnt intended in that way. I just think as a broker, this is the sort of thing we have to look out for. 

You have struggled with bad credit in the past. 
You have/had a high amount of debt that meant you were living to your limit each month. 
You were given money to clear the debt and now you want to rack it back up again, albeit as a mortgage. 

The reason for the post as I say is not to sound judgey but to maybe point it out and get you to think about whether you have a problem or not - I am not saying you do btw. 

Brie

You say you have cleared the debt but can you get into debt again?  If the debt was due to overdraft, credit cards, catalogue, etc then you have credit available to use.  A mortgage provider will need to consider if you can afford to pay for the mortgage as well as anything else if you max out your available credit.  So if you have credit cards that have been paid off I'd suggest you cancel them or lower the limits at least to make yourself a more attractive prospect.

XEO25

Thanks both.

All credit accounts (cards / store credit) have been cleared and closed, except for 1 card with a 700 limited which is being kept to use and pay in full each month - balance is zero currently. 

The bad credit previously was due to my business going under, but this was over 6 years ago and I've been FT employed since on £67k.

I might not need to borrow the full £50k, this would be the max.

amnblog

If your debt is cleared, what is the £50,000 for? The Lender will ask.

XEO25

amnblog said:

If your debt is cleared, what is the £50,000 for? The Lender will ask.

Home improvements (extension)

Hoenir

XEO25 said:

amnblog said:

If your debt is cleared, what is the £50,000 for? The Lender will ask.

Home improvements (extension)

At 90% LTV. Could be above the lenders threshold. Use the freed up cash from the debt repayments to reduce your mortgage balance.