Can I get a Buy to Let mortgage with Bad Credit?
In the past, raising a mortgage for a Buy-to-Let property was a specialised area that required potential borrowers to have a clean credit history. As the decision to lend is often weighted more towards the anticipated rental value of the property than the applicant’s own personal income, mortgages on Buy-to-Let properties could be seen to have more in common with business deals than with enabling people to buy a home, and lenders typically shy away from entering into arrangements with borrowers who might have a blemished financial past.
However, times have slowly changed, and there are now a number of mortgage lenders willing to offer Buy-to-Let mortgages to borrowers with various degrees of adverse credit. These are specialist lenders who have entered the market to fill the gap in demand for mortgages for people with bad credit. They are far more understanding of certain circumstances, and how borrowers might have improved their financial management and position since the adverse credit event occurred.
It is important to establish the exact nature of the credit issues such as when the events occurred and amounts involved. Having access to your current credit report (obtained from one or more of the three main credit agencies in the UK – Experian, Equifax and TransUnion) will help with this, and one of our specialists will then be able to accurately access the information with a view to matching your circumstances with a lender and product to meet your needs.
Bad Credit Buy to Let topics
Getting a Buy to Let Mortgages with Bad Credit
Buy to Let Mortgages for applicants with Bad Credit are now more commonplace in a similar way to residential mortgages. A number of lenders are prepared to look at a client’s past credit issues and make a lending decision which may affect either the rate of interest of the amount of deposit required, or in some cases both.
One of our Buy to Let Specialist Brokers will be able to look through your credit file and quickly establish how we can help and recommend a suitable product or course of action.
You might think that you face a brick wall when applying for a mortgage with bad credit, and that a mortgage on a Buy-to-Let property will be out of your reach. The truth is that, while it might be more difficult, depending on the nature of the bad credit items on your file, it could still be possible to get a mortgage with a bad credit record.
The way to get a Buy-to-Let mortgage with bad credit is firstly to be honest and face facts, and secondly to take the required action to put yourself in the best possible position. A bad credit event will have a negative impact on a mortgage application, if only very slightly, and your behaviour since it happened will be a major influence on a lender’s approach to your case.
If it was a minor event, like a missed payment or two on credit cards, store cards or phone bills, which you took steps to pay off and you have had a clean bill of health since, then most lenders will be willing to discard them. However, if you had a more serious issue – perhaps a CCJ, bankruptcy or even a repossession – then the more you have done to remedy the situation, put yourself in a stable financial position and repair your credit score the better.
Time is also a factor – the longer ago these events occurred and the more time you have had since then to keep a clean credit history, then the less weight they will carry.
The majority of mainstream lenders will not consider your mortgage application, even if you only have a slight blemish, so it’s likely that you’ll have to consider offers from specialist lenders who base their decisions to lend on more than a simple credit record check or computer algorithm. To access these lenders, you will need to enlist the help of an expert mortgage broker or adviser, who will be able to spell out your options moving forward.
When looking at obtaining a Buy-to-Let mortgage, any lender will typically expect you to have a deposit of between 15% and 25% of the market value of the property. As with all mortgages, the larger the deposit you are able to supply, the more favourable the interest rate on a deal is likely to be.
If you are looking for a Buy-to-Let mortgage whilst having adverse credit events on your file, then the number of lenders willing to accept your application will be reduced. Both bad credit and buy-to-let are already specialist areas within the mortgage market, and a combination of the two will narrow down your options further.
Furthermore, the size of your deposit will determine the number of lenders willing to consider your application – the larger the deposit you can put down, then the more security any lenders will have on the loan and the greater will be your number of options. While the presence of poor or adverse credit may influence a lender’s decision and have an impact on the amount of deposit they will expect you to provide, it’s impossible for us to say exactly how much more might be required. This decision will also be influenced by several other factors of your particular circumstances, from the property value to anticipated rental revenue or the size of your portfolio, among others.
For experienced landlords with a portfolio of properties, some of the specialist lenders in this sector may be prepared to look at the portfolio as a whole and base their lending decisions on the combined value of your assets. This broad-view approach to your financial circumstances is one of the many ways the niche-market lenders differ from their more conservative cousins on the high street.
As with all types of mortgages, if you are applying to remortgage a Buy-to-Let property whilst bad credit items are still showing on your credit records, you may find some resistance but it’s still certainly possible if you know where to look at the criteria you will need to meet. Not all lenders are deterred by a poor credit record, and many will take a broader view, with more emphasis on your current circumstances than any unfortunate incidents in the past.
If you have an existing rental property, you may be looking to remortgage for a variety of reasons:
- Your current mortgage deal may be reaching the end of its term, and the rate is about to increase. This may simply entail a straightforward ‘like for like’ remortgage to obtain another competitive rate.
- You might be at the end of a current mortgage deal, with the rate about to increase, but you are also looking to increase the amount of borrowing so that you can make improvements to the home, or possibly to release funds towards a further property purchase.
- You may have a rental property that is unencumbered (free of debt). In this case, you could take out a remortgage in order to raise funds towards further property purchases or to carry out alterations or improvements to current properties.
The existence of previous bad or adverse credit issues may have an impact on the options available to you, as many lenders – particularly those on the high street – tend to shy away from applicants with poor credit reports. However, depending on the nature of the credit problems, their current status and the amount of time that has passed since they occurred, there may still be some lenders willing to consider your situation and grant you a remortgage.
When you apply for a Buy-to-Let mortgage, even though the affordability assessment will pay more attention to the anticipated rental income from the home rather than what you are able to pay purely from your own private means, lenders will still carry out the same credit checks as when you are buying or remortgaging your own home. Recent adverse credit events that show up on a standard check or a low credit score could harm your chances of accessing the most suitable mortgage deals and rates.
However, there are a number of lenders who will consider mortgage applications from borrowers with credit problems. Reflecting the perceived additional risk, as well as market forces of supply and demand, these specialist lenders do generally offer mortgages with a higher interest rate than traditional mainstream lenders. How much higher exactly will vary from one lender to another, and may also depend on other factors, such as the size of your deposit or the full value within your property portfolio.
Even though you may have to suffer a less-competitive interest rate, this will at least still give you the opportunity to obtain the mortgage you need for the property purchase in the immediate circumstances, and it’s important to remember that it won’t be this way forever. When your credit profile has become ‘clean’ (either through time passing to allow bad credit events to slip off the record after six years, and for any debts to be settled) and your mortgage is up for review, we would look into renegotiating a more competitive rate, or perhaps remortgaging to find a better deal elsewhere, depending on the penalties for doing so.
As you can see, much depends on your individual circumstances and the deal we are able to find to suit your immediate and long-term needs. To find out more about your options and what mortgages could be available on the market if you are suffering from a poor credit rating, please get in touch with our team. One of our specialist advisers will be happy to help.
As is the case with conventional residential mortgages, the lenders dealing with Buy-to-Let mortgage applications from prospective borrowers with bad credit are very specialist. Not generally found on the high street, these lenders do not advertise their products or deals directly to the general public or online; you won’t find their names appearing on any of the usual ‘best buy’ charts, and they will always only accept applications through trusted third-party intermediaries, such as established professional mortgage brokers like ourselves.
If you have experienced credit issues in the past, which could range from a series of late payments to a default notice, CCJ, IVA or even bankruptcy, it is important to approach the appropriate specialist lenders rather try applying to a high street mainstream lender for a mortgage. Due to high street lenders having generally narrow criteria for borrowers, you stand a high chance of being declined straight away. Such a refusal will also show up on your credit record and adversely impact your credit file even further.
Your best course of action is to talk over your situation with an experienced mortgage broker who has access a wide range of lenders and products available on the market, and understands both your circumstances and the individual criteria used by a wide spectrum of specialist lenders. We use software and assessment methods that mirror those used by many lenders and by undertaking a review of your past credit problems, together with your current financial position, we are confident that we will be able to match your circumstances to a suitable specific lender.
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Lenders will adopt a totally different approach to payments than they do to mortgage arrears.
Missed payments on a secure loan or mortgage will be considered more serious than missed or late payments on an unsecured loan or credit agreement. An occasional late payment on a credit card or telecoms contract may not necessarily have a big impact on a lender’s decision. However, applicants who have missed mortgage payments which potentially puts their home at risk of repossession, will be looked at much more closely. Most lenders will give borrowers until the end of the calendar month before they register a missed payment on your credit file. This does allow some time to rectify the situation in the event of a banking error for instance.
The lenders will consider how many late/missed payments you have on your credit file and how long ago they occurred. One or two isolated late payments several years ago should mean that you will have access to more lenders and lower rates. Multiple late payments within the last year will present a tougher proposition need to be directed towards more specialist lenders. The type of account you have missed a payment for makes probably the biggest difference to whether you will be accepted for a mortgage or not. Missed payments on unsecured accounts are less of an issue than missed payments on secured credit.
A default notice is served on a borrower when a number of payments have been missed on a credit agreement – this could be for a loan, a credit card, store card, a hire-purchase arrangement, or similar. The default is usually registered when there have been between 3 and 6 missed payments, and the creditor has already issued one or more letters to advise the borrower they are in serious arrears and could face further action.
Simply receiving the default notice may serve as a catalyst to action – rather than allowing the situation to get any worse – and if you satisfy the default prior to making an application, this may have a positive effect on a lender’s decision.
Lenders will also consider the number of defaults you have, when they were registered and the amounts involved. A smaller default three years ago that was settled quickly will have far less impact that a series of defaults still outstanding from during the last few months. Additionally, the circumstances which led to the defaults may be taken into account – at the time, you may have unexpectedly lost your job or had to pay out significant sums for emergency repairs, but could have returned to a normal situation since that occurred.
So, it is indeed possible to get a Buy-to-Let mortgage with one or more defaults – but a lot will depend on the overall circumstances around the issues. To get an honest appraisal of your options, get in touch with our specialist team today.
A County Court Judgement (also known as a CCJ) is a legal decision handed down by the County Court following a hearing at which the court has decided formally that you are responsible for a debt that may or may not have been in dispute. This will be the result of someone taking court action against you (typically following a series of defaults), and either you did not respond or you were unsuccessful in your defence.
If you pay off the debt owed right away, then a CCJ will not be recorded against you. If you don’t, then a CCJ will be registered in the Register of Judgements, Orders and Fines, and will also appear on your credit history. If you pay it off within a month, it will be removed. If you clear the amount owed more than a month after it was registered, the CCJ will be marked as ‘satisfied’, showing people you have settled.
A County Court Judgement can be a severe setback when trying to obtain a mortgage, whether or not you are looking at a Buy-to-Let property. It will have a slightly more negative effect on your credit file than a default notice, and could potentially reduce the chances of obtaining credit for up to 6 years, until it falls off your credit history.
In the meantime, it is possible to get a Buy-to-Let mortgage with a CCJ on your credit record, but lenders will be more averse to your application if it is not yet settled. You will likely need to consider products from specialist bad credit mortgage lenders, who take a wider view of an applicant’s financial history, allowing for context, and will place more weight on your current financial situation.
A Debt Management Plan (also known as a DMP) is an arrangement which allows an individual to deal with their debts in an easier, more manageable way. It could be that they have accumulated several lines of credit that, for whatever reason, have now become beyond their means to maintain – the DMP enables the debts to be frozen while you pay them off at a more affordable rate by reducing the monthly payments.
However, this does have an adverse effect on your credit file, as you are essentially failing to meet the agreed contractual obligations on the loans with every monthly repayment that is less than it should be, and you may find more ‘missed payment’ entries showing up on your credit report.
It could also be that some commitments within the DMP have defaulted, compounding the issue. DMPs and defaults are very often linked because the situation leading to the need for a DMP in the first place usually means someone has experienced financial difficulties and probably tried to struggle through for a while before entering a DMP to make things more manageable.
So, being in an active DMP when you apply for a mortgage could pose a significant problem, but it does not mean you can’t get a home loan for a Buy-to-Let property. The range of lenders and products available to you will be much reduced, you will need to apply to a specialist bad credit lender and will be expected to pay a higher deposit than standard. Given that the standard deposit for a Buy-to-Let is around 15-25%, and you are likely to be using your disposable income to pay off the DMP, the real issue could be your ability to save up a large enough deposit.
If the DMP is settled and historic, but still less than six years in the past, some lenders may raise an issue, but most will be happy to lend to you if you can show a clean credit record in the time since the DMP was served. The upside of a DMP is that it shows you were willing to take responsibility for your debts and make plans to pay them off as much as possible.
An IVA is a legally binding agreement with creditors in order to help repay debts at an affordable rate. Viewed as a form of insolvency, an IVA can affect your ability to obtain finance for up to six years after it has been cleared, the length of time that it remains on your credit history.
The IVA is managed by regular payments being made to an insolvency practitioner – typically a qualified accountant or a solicitor – who then splits the money between the creditors. They will work with you to create a realistically affordable payment plan to settle the outstanding debt – one that the creditors will accept – and will then act as an intermediary between you.
If you have settled an IVA (usually after five years), then there is no reason why you should not apply for a mortgage, although the number of lenders open to you will be fewer than for someone with an unblemished credit record, and their terms are likely to be tighter. You will probably be asked to provide a higher level of deposit, and the interest rates might not be as competitive as standard rates.
High street lenders who base their criteria purely on an applicant’s credit score and nothing else will probably decline you, but there are a number of specialist lenders who will be happy to consider your mortgage application. They will look at your wider circumstances and make a more thorough assessment of your current financial situation and your level of affordability before considering their loan offer.
If you have any doubts, worries or questions, please don’t hesitate to contact a member of our team, who will be able to go over your circumstances and advise what options are open to you at this point in time. Initial consultations are free and carry no obligation.
You might be forgiven for thinking that previous bankruptcy – a serious measure where your financial affairs are drastically restricted but your debts are managed or removed – would be a serious hindrance to getting any line of credit granted again, let alone a Buy-to-Let mortgage. However, we have seen that it is entirely possible for someone with a discharged bankruptcy to obtain a property loan – it all depends on your individual circumstances, the amount of time that has passed, the level of deposit you are able to raise, your financial conduct since the bankruptcy was discharged and your financial status at the time of applying.
It’s theoretically possible to apply for a mortgage the day after the bankruptcy is discharged – and there are a handful of lenders who may lend to you in these circumstances – but the criteria and terms will be far more burdensome than if you were to wait a few years. You’ll be expected to supply a substantial deposit, submit a thorough assessment of your finances, and the interest rate on the loan could well be far from competitive. If you’re still having to make payments to creditors due to an income payments agreement, and many of your assets during bankruptcy were taken to pay off debts, then it could be too much of a challenge to apply for a mortgage within three years of discharge.
As ever, time plays a major role in your chances of getting credit or a mortgage after bankruptcy, with adverse credit events finally slipping off your credit reference file after six years. Even after this, though, if you are asked if you have ever been declared bankrupt, you will need to answer honestly. A lender will make a decision based on their individual criteria and how your financial position and credit score has improved since you were declared bankrupt.
It’s highly likely that you will need to get a mortgage from a specialist, non-mainstream lender if you are applying after a bankruptcy. To do this, you’ll need to work with an expert mortgage broker, who will be able to go over all your circumstances and advise you exactly what will be the right option for you going forward.
In the event that you have previously had a mortgage on a property and this property was repossessed due to mortgage arrears, the chances of a successful result from applying for another mortgage are sadly greatly reduced. Especially in the first few years following the repossession, mortgage lenders are going to treat you as a far greater risk than a conventional applicant, and be very wary of lending to someone who has not been able to keep up with repayments previously.
Various factors will influence the lender’s decision, but the greatest concern will be whether or not there is any outstanding debt on the previous mortgage following its sale by the lender. They will also be keen to know who that mortgage was with – if the lender was a member of the same commercial ‘group’ as the one you are applying to, particularly one on the high street, then it could be that you have been permanently blacklisted within the group as a whole.
However, it isn’t all doom and gloom. Niche-market lenders who specialise in servicing people with bad credit issues take a wider view of an applicant’s financial position, will take your behaviour since the repossession into account, and could be willing to consider your application. The amount of time since the repossession also makes a difference – if it has been three years or more, then many lenders will be more flexible.
As a show of commitment and to give greater security, being able to provide a larger than average deposit will also help, although with deposits for Buy-to-Let properties already being higher than usual, this may be a challenge for most people. To get an accurate assessment of your chances for the Buy-to-Let after a repossession, please contact our team to arrange a quick, free, no-obligation consultation.
A Buy-to-Let property is as much a business proposition as it is a property to own and a home for a tenant to live in. A lender’s decision will depend as much on the anticipated rental income from the property (in order to service the repayments on the mortgage) as your own personal income and financial situation. So, if you have bad credit marks on your credit history then, while it might make the process a little more tricky, it is certainly not the end of the world.
As you can imagine, a lot will depend on the type of bad credit event, the amount of money involved, and the amount of time that has passed since it occurred. However, in every circumstance, with a bad credit event on your file your options for lenders and products will be more limited than otherwise, and the attitude of lenders towards your application will be tainted in some way.
Almost certainly, in every case of someone applying for a mortgage with one form of bad credit or another, they will benefit greatly, and their chances of acceptance will be much enhanced, if they talk over their situation and application with an expert mortgage advisor who has access to a wide range of mortgage products and experience in handling cases exactly such as yours.
Here at Just Mortgage Brokers, our team have been working with people with all kinds of bad credit issues for many years – we completely understand the problems you face and know what it takes to turn a seemingly impossible situation into a successful result. With access to all kinds of deals from specialist lenders that you won’t find on the high street, often with exclusive rates, we are confident we will be able to find the mortgage product to meet your needs. Get in touch with us today.