Right to Buy mortgage with bad credit

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Right to Buy mortgage with bad credit

  • Right to buy specialists
  • Exclusive Bad Credit Rates
  • Free initial advice
  • Great reviews
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Author: Carl Shave - CEO and co-founder
Last updated: May 20th, 2022

Can I get a Right to Buy Mortgage with bad credit?

The government’s statutory Right to Buy scheme, designed to allow council tenants in England to buy the home they rent at a discounted price, was introduced in 1980, since when around two million council properties in England have been purchased.

A number of changes introduced in 2015 made the Right to Buy scheme a more attractive proposition to many people, even if you have bad credit: it is now available to those who have been council tenants for three years, rather than the previous five, and maximum discounts are  £84,600 (or £112,800 in London) increasing each year in April in line with the consumer price index (CPI).

An introduction to Bad Credit Mortgages

Right to Buy mortgages with poor credit

Further to the 2015 changes to the Right to Buy scheme, another major amendment was to extend it to include assured tenants of Housing Association properties. The scheme operates on a voluntary basis and was piloted by five housing associations in 2016, with a substantial number of regional associations joining them during 2017-2018. A total of more than 77,500 tenants used Right to Buy to purchase their homes in the five years up to the end of 2017.

This opportunity to get onto the property ladder, with the prospect of paying money into a mortgage rather than see it disappear in rent, or re-selling later for a profit, is tempting for many. However, with many Housing Association tenants being on lower incomes, how will their chances to get a mortgage be affected if they have a poor credit rating?

Right to Buy Mortgages With a Bad Credit History

A number of lenders have now entered the Right to Buy mortgage market, providing financing for eligible tenants – whether in council housing or housing association properties – to be able to buy their homes. However, if you have suffered bad credit problems in the past, this may have an adverse effect on whether you can obtain a mortgage, and the terms and rates you will be offered if so.

This is why you may need to check the options open to you via specialist mortgage lenders who do not operate on the high street, nor online, but cater to exactly the needs of people in your position. These lenders are only accessible through specialist advisers, such as our team here at Just Mortgage Brokers.

Over the next sections, we’ll cover a few things you should consider if you are wondering about whether you can still buy your council house under the Right To Buy scheme with a history of bad credit.

Having adverse credit events, like CCJs, defaults, an IVA or just a few missed card payments, can make it more difficult to obtain a Right To Buy or a standard mortgage, but much will depend on your individual circumstances. How a lender will react to the bad credit event on your record will be influenced by the amount of money involved and the seriousness of the bad credit issue.

Most high street lenders will shy away from applicants with bad credit events on their records (up to the last six years), and you will likely need to talk to a specialist lender. We should take each type of event and consider what might be the implications.

 

Repossessions – Most lenders will decline you if you’ve ever had a repossession. A handful of specialist lenders may accept if it occurred within the last year, but it will be tough. A few will consider your application if it’s within three years of a repossession, more within the last 6 years, while many are happy to accept if the repossession occurred over six years ago.

Read more about mortgages after repossession.

 

Bankruptcy – A select few specialist lenders will consider applications the day after a bankruptcy was discharged, while a few more will accept you after 12 months, and most will be willing to view your application if it’s been three to six years since the discharge. Mainstream lenders are likely to decline you altogether.

Read more about mortgages after bankruptcy.

 

DMPs and IVAs – If you are currently in a debt management plan or an individual voluntary arrangement, then only a few specialist lenders will accept you for a Right To Buy mortgage. But if the plan was settled three or more years ago, then most will be willing to lend to you.

Read more about mortgages with a DMP or an IVA

 

Arrears – Most lenders will accept arrears more than three years ago, and there are quite a few who will be fine with some more recent instances. A specialist lender will look at all the factors around your situation. If you are currently in arrears on your mortgage, then it’s unlikely that a lender will accept you for a new one.

 

Defaults and CCJs – If the issue occurred within the last 12 months, then there may be difficulties, but there are lenders on the market who will consider applicants with defaults within the last few weeks, and most will be happy if the default or CCJ was registered three or more years ago. Some lenders will be less accepting of CCJs than others.

Read more about mortgages with a default or a CCJ.

 

Late payments – If you’re currently behind on other payments, then it’s unfortunately unlikely that you will be accepted for a mortgage. However, if the fewer and more far between they are, and the further into the past, the more likely a lender is to forgive them, especially if your financial records are otherwise exemplary.

Read more about mortgages with late payments.

 

If you simply have a low credit rating, perhaps because you don’t have much, or any, history of borrowing, then it’s unlikely to have much of an effect, and lenders will look closer at your current financial circumstances – your income, outgoings, level of current debt, etc – to make an affordability assessment and come to a decision.

As ever, the more time that has passed since the bad credit issues occurred, the less weight they will carry, especially if you’ve taken steps to repair your credit record and keep a clean slate since. You might also find that a lender’s criteria for those with bad credit might change over time – get in touch with one of our advisors to find out your current options.

Depending on the type of issue, your options for which lender will consider your application will be more narrow than usual, and the criteria more stringent, but it will not be impossible to get a Right To Buy mortgage with a poor credit history.

At Just Mortgage Brokers, our team are experts in bad credit mortgages, and know exactly how to help people looking to exercise their rights under Right To Buy find exactly the right mortgage for their circumstances, whatever their credit history.

Those with bad credit events on their records, or a low credit score for whatever reason, are often faced with more challenging conditions when they apply for a mortgage. One of these conditions might be the need to provide a larger than average deposit, although how essential this will be might depend on what other mortgage terms you are willing to accept – for instance, a higher interest rate.

A larger deposit that acts as security on the home loan, and shows that you are committed to the mortgage, will help lenders to see your case more favourably, and should make it easier for you to find a mortgage to meet your needs as well as help to get your application accepted.

If you are only able to provide the standard deposit amount of 5%-10%, and you have adverse credit issues on your credit record, then a lender is likely to impose a higher interest rate to compensate for the higher level of risk. This said, any bad credit events on your record will lessen in impact over time, especially if you have had a clean record since and taken steps to improve your credit rating, and will eventually fall off your record after six years. With most mortgage lenders, they will accept the right to buy discount as you deposit, thus avoiding the need for further funds being required from the borrower.

Generally speaking, the larger the deposit you can provide, whether you have a bad credit rating or not, the better the terms will be of your loan. So, while a larger deposit might not always be necessary, it might well be useful in order to get a better, more affordable deal.

If you have any bad credit entries on your credit history, and want to find a Right to Buy mortgage, always talk to a specialist mortgage adviser. At Just Mortgage Brokers, we’ll be able to make a quick assessment of your situation and advise you of your most suitable options going forward.

Can I use my discount as a deposit?

This depends on the lender. Most lenders will treat your Right-to-Buy discount as a deposit. However, this is not universal across all lenders, and some will still ask for a cash deposit against the purchase of the property. This may affect your choice of lender when looking for a Right-to-Buy mortgage. If you do put a deposit down, either by choice or because the lender requires it, this can help to reduce your monthly mortgage payments in the longer term; it may also give you access to more favourable mortgage deals.

Use Discount Calculator

 

Can I buy my Right-to-Buy property with adverse credit?

Adverse credit need not in itself be a barrier to buying your property through Right to Buy, although it can make a difference. You may not qualify for Right to Buy if you have specific legal problems with debt, or an outstanding possession order. Although other forms of adverse credit will not disqualify you, you may find it more difficult to get a mortgage with a poor credit score. There are, however, lenders who specialise in lending to people with poor credit histories.

 

My Right-to-Buy flat is in a high-rise building, can I get a mortgage?

The Right-to-Buy scheme applies to both houses and flats, and does not specifically exclude flats in high-rise buildings. However, some lenders have restrictions on the types of properties on which they lend, and may not grant mortgages on flats in high-rise buildings. Ensure that any lenders or mortgage brokers you speak to are aware up front of the type of property you want to buy.

 

What is the maximum age lenders will accept on a Right-to-Buy application?

The Right-to-Buy scheme does not have an upper age limit. Some lenders, however, do have upper age limits for mortgage applicants. This is partly because they need to be sure that you can afford to keep paying the mortgage for the agreed term, including after retirement.

You can apply for a Right-to-Buy mortgage jointly with your spouse or civil partner, with anyone else who shares your tenancy, or with up to three family members who have lived with you for at least the past 12 months. Some borrowers may be more flexible with their maximum age requirements in cases where a Right-to-Buy mortgage application is made jointly with a younger family member.

 

What is the maximum age lenders will accept on a Right-to-Buy application?

The Right-to-Buy scheme does not have an upper age limit. Some lenders, however, do have upper age limits for mortgage applicants. This is partly because they need to be sure that you can afford to keep paying the mortgage for the agreed term, including after retirement.

You can apply for a Right-to-Buy mortgage jointly with your spouse or civil partner, with anyone else who shares your tenancy, or with up to three family members who have lived with you for at least the past 12 months. Some borrowers may be more flexible with their maximum age requirements in cases where a Right-to-Buy mortgage application is made jointly with a younger family member.

 

Can I borrow extra for home improvements when I take out the mortgage?

Depending on the value of your property, the level of Right-to-Buy discount, and the lender’s maximum loan-to-value (LTV) ratio, it may be possible to borrow extra money against the property to carry out home improvements. Be aware that for leasehold properties, you may have to get permission from the freeholder (usually, your current landlord) before making any changes to the property.

 

Can I rent out my RTB property once I have obtained a mortgage?

Buying your property through the Right-to-Buy scheme does not disqualify you from letting it out afterwards. However, lenders do have a say over this and it depends on what type of mortgage you take out. If you intend to let out the property immediately and on a long-term basis, you will need a buy-to-let mortgage. This differs from a standard residential mortgage and usually involves higher arrangement fees and interest rates; it can also be more difficult to get a buy-to-let mortgage as many lenders will not permit these for a Right to Buy purchase.

If you haven’t decided to let out the property immediately or on a long-term basis, but may want to let in future, then you should apply for a standard residential mortgage with the view of requesting their approval to rent the property when the time comes. This is usually called applying for “content to let” or “consent to lease”. Lenders vary considerably in their letting consent policies: some can be quite flexible as long as the letting is for a limited period (for example, up to two or three years), while others will only give consent to let in very specific circumstances (for example, if you are going to be working or serving abroad for a fixed term). There may be fees involved in either applying for consent to let, or in changing from a residential to a buy-to-let mortgage.

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