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Do we need a credit check to know if we can remortgage? | Money

Q In 2013 we bought our house on a Scottish island for £229,500 on a 16 year mortgage. I am 51, my husband 56, so we now have a mortgage for the next 12 years. The house is big but the kitchen is small and we have a big family. We are considering having a new kitchen built and there seem to be two options. We can either build one in our dining room for around £17,000 which would look very nice. Or we can go bankrupt and demolish the small extension which houses our existing kitchen and toilet, and build an extension with kitchen diner, utility room and office opening onto our large garden, which would cost around £50,000.

We owe £96,500 on our mortgage and as the house is valued at £275,000 we could re-mortgage to finance either option. The only problem is that our credit scores are not perfect. My rating is good to excellent, but my affordability score is poor. My husband’s is average. However, we have a lot of personal borrowing, and we are asset rich and cash poor, mainly due to funding three of our kids through college, which means credit card usage is high.

I don’t want a remortgage application to be denied and this credit application has a ripple effect on other applications. So are we going to wait six months to straighten out our finances a bit and then apply, or grit our teeth and apply now, or just forget about it? KM

A When evaluating a credit application, lenders will calculate their own credit score for you using their own unique formula and make their own assessment of whether you can afford new credit, such as an increase in mortgage in your case. Lenders do not use credit scores produced by credit reference agencies, which are for you only and designed to give you an idea of ​​how lenders will view you and the likelihood of their best deals being offered to you. .

What lenders look at is how much you owe relative to your income, how much of your available credit you are using, and how much money you have after paying your living expenses. They will also consider historical information held by credit reference agencies, which tells them how well you are managing your debts and whether you have missed repayments, as well as whether you have defaulted on loans and/or been declared bankrupt in the past. six years.

You don’t need a credit reference agency score to tell you that if your mortgage payments and other debts are – or will be – more than 80% of your income, you’re at risk of seeing yourself refuse more credit. As you will be if you are maxed out on your credit cards and only make the minimum repayment each month. Lenders will also take a dim view if you’ve missed repayments in the past, as they fear history will repeat itself.

So yes, it would be a good idea to get your finances in order before applying for a mortgage. If you’re turned down for a loan, you’re right to think it will impact future mortgage applications. However, making a soft request, talking to your current lender, for example, and getting an agreement “in principle”, won’t do it. A conversation with your mortgage lender should also help you decide which kitchen improvement option to choose. If you are unable to borrow £50,000 you will not qualify for the large extension. If you can’t borrow an extra £17,000 either, you can forget about a bigger kitchen. But equally, you may find that you can borrow enough to finance a project that falls somewhere between the two options.