Buy to Let Bad Credit Mortgage
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Buy to Let Bad Credit Mortgage
Sam Bull from JB Mortgages is back to explain how the Buy to Let mortgage process works if you have bad credit.
Can you get a Buy to Let mortgage with bad credit?
Yes, you can, but your options, rates and required deposit may be less favourable than for applicants with clean credit. But the good news is we can almost certainly get you a mortgage.
What credit issues typically affect a Buy to Let mortgage application?
I put this into three categories. Minor issues would include the occasional late or missed payment and a low credit score. These are commonly considered by lenders and are usually accepted with no problems.
More moderate issues would be occasional mortgage arrears, potentially a default or CCJ (County Court Judgment). These would reduce the amount of mortgage lenders available, but there are lenders who would be happy to help in these circumstances.
Then there are severe issues, such as an IVA (Individual Voluntary Arrangement), bankruptcy or repossession. These would restrict the choices to a very small group of lenders, and they would usually need a much larger deposit – even up to 40%.
What’s the difference between credit score and credit history?
A credit score is a single numeric summary that you often find on a credit report. It’s often a score out of 100 or 1000.
Your credit history is your full credit report – which is a detailed record of all your credit accounts and any missed payments, defaults and CCJs. It lists anything registered within the last six years.
What credit score or credit history do you need for a Buy to Let mortgage?
All mortgage lenders have their own credit scoring criteria and so we would review your credit report, noting down the type of arrears, when it was registered and if it’s now satisfied. Based on the full report, we’d then be able to recommend a suitable mortgage lender.
Are there specific lenders who specialise in Buy to Let mortgages with bad credit?
Yes, there are specialist mortgage lenders who focus on helping clients get a Buy to Let mortgage if they’ve had issues with credit. These mortgage lenders often allow Buy to Let mortgages for clients that high street banks have previously declined. Many of these specialist lenders only let clients apply via a registered mortgage broker.
What types of Buy to Let mortgages for bad credit are there?
All the standard Buy to Let products still exist in the adverse credit market – such as fixed rate, variable and tracker options.
You could choose an interest-only mortgage or have it on repayment. Offset mortgages are also available. All the usual options on mortgages generally are on offer if you have bad credit – they might just be on different terms.
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Everyone’s different. You might be self-employed. You might have some credit history issues – whatever your situation, we will find the most suitable product available to you from across the whole market.
How much deposit is required for a Buy to Let mortgage with bad credit?
Mainstream Buy to Let mortgages will require a minimum deposit of 15%, although most of the time they still want 20% to 25%. If you’re applying for a mortgage with bad credit, lenders typically require a larger deposit.
That will tend to be from 25% up to 40%. It’ll just depend on the credit history – what the bad credit is and when it was registered.
What are the affordability criteria for a bad credit Buy to Let mortgage?
Mortgage lenders primarily underwrite based on the property’s anticipated rental income, with an interest cover applied.
Typically, they want the rent to be 125% to 145% of your mortgage interest payments at a stressed interest rate. They’ll also assess your overall finances, other debts and your Buy to Let portfolio, if you have one. They may stress test slightly higher for applicants who have bad credit.
How will bad credit affect a joint Buy to Let mortgage application?
Mortgage lenders assess all applicants’ credit histories, and often base the application against the weakest credit profile. Any adverse credit entries on one applicant’s credit report will limit the entire application and the products that are available.
How can a mortgage broker help? Have you got anything else you’d like to add?
Mortgage brokers will match your credit report to the correct lender. We’ll make sure you will definitely be accepted within that lender’s criteria.
A good mortgage broker will shop around the products available on the market, including those from lenders who only allow applications from mortgage brokers. We will also handle all your paperwork and submit all the applications, so hopefully you’ll get your application approved the first time.
Key Takeaways:
- It is possible to get a Buy to Let mortgage with bad credit, though options, rates, and required deposits may be less favourable.
- Credit issues are categorised into minor (late payments, low score), moderate (occasional mortgage arrears, default, CCJ), and severe (IVA, bankruptcy, repossession), with severe issues leading to fewer lenders and larger deposit requirements.
- A credit score is a numeric summary, while credit history is a detailed report of all credit accounts and issues over the last six years.
- Mortgage lenders exist for Buy to Let mortgages with bad credit, often allowing applications that high street banks decline, and many require application through a registered mortgage broker.
- Affordability for a bad credit Buy to Let mortgage is primarily based on anticipated rental income, with lenders typically wanting rent to be 125% to 145% of mortgage interest payments at a stressed interest rate.
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.
