Buy to Let Bad Credit Mortgage
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Buy to Let Bad Credit Mortgage
Jahed Mirza from Expert Mortgage Brokers explains how the Buy to Let mortgage process works if you have bad credit.
Can you get a Buy to Let mortgage with bad credit?
You can, depending on the situation, but your options may be more limited – especially if we need to approach lenders that cater specifically for applicants with bad credit.
Before you start looking for a mortgage, always check your credit score – but bad credit won’t necessarily stop you achieving your plans.
What credit issues affect a Buy to Let mortgage application?
Issues can include missed or late payments on credit cards, loans or a mortgage. Those will definitely affect your credit, as will any defaults or county court judgments (CCJs) in the last three to six years. The more of those issues you have, the less likely it is you’ll get lending.
If you’re in an Individual Voluntary Arrangement (IVA), have a debt management plan or have been through bankruptcy, you’ll struggle. Another challenge is mortgage arrears. If you miss mortgage payments, lenders are really unlikely to accept you – because you then have a history of not paying your mortgage.
What’s the difference between credit score and credit history?
You’ll get a credit score from a credit agency like Experian, Equifax and TransUnion. That score gives you an idea of what kind of lending you can get – it summarises your risk profile. As an example, Experian scores out of 1000, and anything above 800 is a good credit score.
Credit history, on the other hand, is the detailed record of what you’ve done in the past six or 10 years. You could have a decent credit score, but perhaps your credit history shows a missed payment in the last three years – that can still affect your lending.
One lender might be happy with your credit score, but others may see that negative point on your credit history and reject your application. So, both credit score and credit history are important.
What credit score or credit history do you need for a Buy to Let mortgage?
There isn’t a specific score required. It’s more about the history than the credit score itself.
As a rule of thumb, if your score is anything under 700, it’s best to speak to a broker and look at your credit record with them. Above 700, you’re more likely to get lending.
Adverse credit isn’t the end of the world and you can still get a mortgage, but speak to us for specific advice.
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Are there specific lenders who specialise in Buy to Let mortgages with bad credit?
Yes, there are several lenders in what we call the subprime market. They include Kensington, Precise, Vida Home Loans and Pepper Money. These actually look for clients with bad credit scores.
They know they can’t compete in the high street market, so they focus on the subprime market. If you’ve got missed payments, CCJs, or defaults, there could be lenders for you.
What types of Buy to Let mortgages for bad credit are there?
It’s the same as on the high street – you’ve got fixed and variable rates or interest-only products. All the same types of lending from the standard market are available in the bad credit market.
You do need to be aware that this type of lending will have higher rates – usually 1% to 2% – than the high street market.
How much deposit is required for a Buy to Let mortgage with bad credit?
I wouldn’t say there are any differences. Again, the standard is 25% with bad credit lenders. But as the rates are higher, and interest rates and the stress rates are all matched together, often a 25% deposit won’t cut it in a bad credit situation. You’re frequently looking at a 30% to 35% deposit.
What are the affordability criteria for a bad credit Buy to Let mortgage?
Buy to Let mortgages are usually based on the rental income, not your salary, where the rent needs to be 125% or 145% of the mortgage interest, at a stress rate of 5% to 7%.
That’s similar to what the high street market will lend you, based on the rental income for the property that you’re looking to buy or remortgage.
How will bad credit affect a joint Buy to Let mortgage application?
Perhaps one of you has good credit and the other has bad credit – the lenders will look at both applicants’ credit history. They always focus on the worst credit, so you’re both technically lumped in together with the bad credit.
Some lenders may look at the stronger applicant, but more often than not, bad credit will affect the whole application.
How can a mortgage broker help? Any final thoughts?
Not all these subprime lenders are available directly, and that’s why you come to a broker. We will also go through your credit report with you, saving you time in seeking out which lenders will and won’t lend.
Definitely speak to a mortgage broker if you have bad credit and are looking for a Buy to Let mortgage.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
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