Are you considering relocating? If you are, you’re not alone. The urge to relocate has been largely driven by an increase in the number of people now working from home, either all or some of the time. This has freed many employees from the need to be within commutable distance of their workplace.
Research from the ONS suggests that around 12% of people who are planning to continue working from home are also considering relocation within the UK. The most popular areas to relocate to are coastal or rural areas, with people grabbing the opportunity to finally make their dream move. As well as those thinking about a move into another area, others are considering a move to make working from home easier, for example moving to a property with space for a home office. Many are also keen to move in order to beat the 31st March 2021 UK deadline of the stamp duty holiday.
However, lockdown hasn’t just seen a shake-up of working practices. For many UK adults, it has also meant financial hardship. Reduced wages due to furlough will have hit many of the very people who may now be thinking of moving home. Where this has led to financial problems such as missing bill or loan payments, there may well have been a negative impact on creditworthiness.
All this adds up to a complex situation with more people than ever looking to relocate, at a time when more people than ever may find it difficult to find a lender willing to lend to them. Many of these people may never had problems with credit before, and so negotiating the landscape of bad credit mortgages could be both unfamiliar and scary. So, what should you consider if you are thinking of relocating but are worried about the health of your finances?
How poor is your credit score?
First things first. No one has one, single ‘credit score’. When you apply for credit, such as a mortgage, the lender will look at a range of factors to assess whether to lend to you. This assessment considers things such as your current income, the stability of your income and whether you have had problems paying back credit in the past. Problems may be indicated to lenders by events such as bankruptcy or CCJs, as well as missed credit payments.
However, the credit score that you see if you ask for a copy of your credit report can give you an indication of the general state of your financial health. Reports are generated using information from the 3 main Credit Reference Agencies – TransUnion, Equifax, and Experian – and as well as giving you a ‘score’ will show the type of adverse credit events already mentioned. It’s worth requesting a credit report if you are thinking of applying for a mortgage to see where you may stand in the eyes of lenders.
Where are you relocating to?
For a lot of people, the attraction of relocating is the chance to move to an area where property is cheaper. This is particularly true of those considering moving out of London. This may make it easier to find a lender as you will have more equity in your home and will consequently need to borrow less. As a rule, the lower the loan-to-value ratio of your intended mortgage is, the greater choice of deals there will be available to you. This is true even if you have a poor credit history.
Will the move affect your employment?
You need to be certain that any move tied to continued home working would be acceptable to your employer. This is because, as mentioned, one of the factors that a lender will look at when assessing your application is the stability of your income. Therefore, they will want to be sure that your salary will continue at least at the level it is when you apply for a mortgage.
Some brokers have reported incidences of mortgages in principle being withdrawn when lenders discover that they involve a significant geographical relocation. The mortgage offer may be withdrawn as lenders are unconvinced that you intend to stay in the same job following the move.
Lenders will tend to look at the type of job you are doing in order to judge whether it is plausible that you will be able to carry out the role in a different location. Most lenders may be sceptical about a relocation of a considerable distance, as it raises questions about the practicality of working for your existing employer. In some circumstances they may ask for confirmation from your employer about the acceptability of the move.
Have you got a deposit?
The personal finance picture over lockdown has been mixed, however. While research by Citizens Advice has shown that around 6 million have missed at least one household bill payment during the pandemic, figures from the ONS show that household savings grew between April and June hitting the highest level since records began.
It’s possible that you missed bill or credit payments early in lockdown, which will have impacted your credit report, but have since been able to make savings. If this is the case a larger deposit may improve your chances of finding a deal despite the adverse credit showing on your report.
Having said that, if you have outstanding debt that is accruing interest, you may be better served by paying this off and waiting to build your deposit back up before thinking of moving house. As these decisions are complex, professional financial advice could be advisable.
Did you take a mortgage payment holiday?
As mortgage payment holidays come to an end, it’s worth considering how taking one could have impacted upon your ability to find a mortgage in the future. It’s true that payment holidays don’t appear on your credit report. That doesn’t mean that a payment holiday won’t have an effect though.
When looking at your application lenders will look at your mortgage payment history. A 3-month gap will indicate that you took a payment holiday. If the gap is longer, they will know that you had to extend the payment holidays, and this may set alarm bells ringing about your ability to manage your finances. It is for this reason that many financial advisers warned against taking advantage of the payment holiday unless you were really struggling.
It may seem unfair that steps you have taken to protect yourself financially appear to be being held against you, however lenders have to assess the risk of lending to you, and using your past financial behaviour is one way to gauge this.
That being said, lenders will take individual circumstances into account, so don’t assume that you have ruined your chances of being able to relocate just because you have taken a mortgage payment holiday.
Has your company taken a bounce back loan?
The purpose of bounce back loans is to support small and medium-sized businesses during the pandemic, and they are interest-free for the first 12 months. Generally, a business loan shouldn’t affect a personal mortgage application, particularly if you have a limited company. However, some issues have been identified with bounce back loans which could impact on you if your company has taken one.
Lenders have been concerned that some bounce back loans have been taken with the intention of putting the loan amount toward a deposit on a property. As lenders don’t generally allow a loan to be as a deposit, if they suspect the loan has been taken for this purpose, they may turn the application down. Essentially applicants should be able to demonstrate where the money came for your deposit. Underwriters may look more carefully at applications from people whose company has taken a bounce back loan both for this reason, and because they want to be doubly sure of the financial security of the company.
Do you intend to use a broker?
It’s certainly possible to find a mortgage deal just by looking online and doing the legwork yourself. If you have any concerns about your creditworthiness however this option may not be practical. You may think you’ve found a good deal, only to discover quite far down the application road that your credit history leads to the lender rejecting you.
Using a broker can help you save time. They will ensure that your paperwork is in order, and they won’t waste time chasing deals that you are unlikely to be accepted for.
A specialist bad credit mortgage broker can be invaluable if there is any problem with your credit history. They will understand which lenders are most likely to be sympathetic to your circumstances, whether that includes missed payments or a mortgage payment holiday. Brokers also frequently have access to exclusive deals, in addition to mortgages from both high street and specialist bad credit mortgage lenders.
If you do decide to use a mortgage broker, ensure you find one who won’t charge you upfront and who has access to the whole of the market.
If you’ve made the exciting decision to remortgage don’t let financial problems during lockdown stop you.