Buy to let mortgages with bad credit
Discover additional information on how to obtain a buy-to-let mortgage despite having bad credit.
Unsure about securing a buy-to-let mortgage due to bad credit? We are here to help!
Securing buy-to-let mortgages with bad credit may seem like a daunting task. However, even with a less-than-ideal credit history, the dream of owning a rental property isn’t out of reach. While some traditional lenders might be hesitant to approve such mortgages, there are specialist lenders who understand that everyone’s financial journey is unique. This comprehensive guide is designed to help you understand the dynamics of obtaining buy to let mortgages with bad credit, offering valuable insights, practical tips, and potential strategies to help turn your property investment aspirations into reality.
A buy to let mortgage with bad credit refers to a type of mortgage product specifically designed for people who wish to buy property as an investment to rent out (buy to let), but who have a poor or less than perfect credit history.
Your credit history is a record of all your borrowing and repayment activities, including loans, credit cards, overdrafts, and even utility and mobile phone bills. If you’ve had issues in the past such as missed or late payments, defaults, County Court Judgements (CCJs), or bankruptcy, these will all show up on your credit history and are likely to lower your credit score, making you appear as a higher risk to lenders. This can make it more difficult to secure a mortgage.
While a bad credit score can make it harder to obtain a buy-to-let mortgage, it doesn’t make it impossible. There are lenders who specialise in offering mortgages to those with bad credit. These lenders typically look at a wide range of factors when determining whether to lend to you, not just your credit score. They will consider the rental income you could earn from the property, your deposit, your employment history, and other financial circumstances.
However, it’s important to note that these types of mortgages usually come with higher interest rates and fees, reflecting the perceived higher risk associated with borrowers who have a history of bad credit. It is always advisable to seek professional advice before proceeding with a buy-to-let mortgage, particularly if you have bad credit.
Yes, it is possible to get a buy-to-let mortgage even if you have bad credit. However, it can be more challenging, and there are a few key things to be aware of:
Higher interest rates: Because a poor credit history is often seen as representing a higher risk to lenders, the interest rates on buy-to-let mortgages for individuals with bad credit are typically higher than for those with good credit.
Larger deposit: You might need to provide a larger deposit, often 25–40% of the property’s value, to secure a mortgage if you have a poor credit history. This is another measure to offset the risk perceived by lenders.
Limited choice of lenders: Many high-street lenders are less likely to offer buy to let mortgages to individuals with bad credit. However, there are specialist lenders and brokers who deal specifically with individuals in these circumstances.
Rental income: Lenders will look at the potential rental income from the property to ensure that it can cover the mortgage repayments. This is usually assessed as a percentage, often around 125–130% of the mortgage payment, though it can vary depending on the lender and your circumstances.
Individual assessment: How a lender views your credit history can depend on a number of factors, including how long ago the credit issues occurred, the type and severity of the issues (for example, bankruptcy is considered more severe than a late payment), and how you’ve managed your finances since the issue occurred.
There are several lenders who could potentially offer buy-to-let mortgages to people with bad credit in the UK. However, the exact lenders available to you will depend on your specific circumstances, such as the nature and severity of your credit issues, the size of your deposit, and the expected rental income from the property. Here are a few lenders known for considering applications from those with bad credit:
1. Precise Mortgages: This lender offers a range of buy-to-let mortgages and considers applications from those with past credit issues.
2. Aldermore: Aldermore has been known to consider applications on a case-by-case basis, including from those with less than perfect credit.
3. Pepper Money: This specialist lender considers applicants with a history of credit issues.
4. Kensington Mortgages: Kensington considers a wide range of circumstances and may accept applications from those with past credit issues.
5. Bluestone Mortgages: Bluestone is a specialist lender that may consider applications from those with a poor credit history.
6. Vida Homeloans: Vida Homeloans offers a range of mortgage products and considers applications from those with past credit issues.
7. Together Money: This lender offers a wide range of specialist mortgage products and may consider applications from those with a history of credit problems.
8. Masthaven Bank: Masthaven offers a range of mortgages, including buy-to-let mortgages, and considers applications from those with credit issues.
However, these are just a few potential options. The acceptance criteria for each lender will also vary. Therefore, it’s often best to consult with a mortgage broker who specialises in bad credit applications, as they can provide the most up-to-date advice and help you find a suitable lender based on your individual circumstances.
Mainstream lenders, such as high-street banks and building societies, tend to have more stringent lending criteria than specialist lenders. This means they are often less likely to approve mortgage applications from individuals with bad credit, particularly for buy-to-let mortgages.
If you have minor credit issues, such as a single missed payment a few years ago, some mainstream lenders may still consider your application. However, if you have more serious issues on your credit report, like a recent bankruptcy or multiple missed payments, it’s less likely that a mainstream lender will approve your application.
It’s important to note that each lender has its own criteria for assessing credit risk, and they might not all view your credit history in the same way. So, just because one lender rejects your application, it doesn’t necessarily mean that all lenders will.
If you’re considering a buy-to-let mortgage and have a bad credit history, it may be beneficial to speak with a mortgage broker.
They can provide advice tailored to your individual circumstances and help you find a lender that is most likely to approve your application. Plus, they can give you advice on how to improve your credit score and increase your chances of being approved for a mortgage in the future.
Using a specialist lender can be beneficial if you have a complex financial situation, such as bad credit, irregular income, or if you’re looking to buy a non-standard property. Specialist lenders are often more flexible and understanding of unique circumstances, which can increase your chances of being approved for a mortgage.
Here are some factors to consider when deciding whether to use a specialist lender:
1. Credit History: If you have a poor credit history, specialist lenders are often more likely to approve your mortgage application than mainstream lenders. They have more experience with bad credit cases and usually consider a wider range of factors when assessing your application.
2. Interest Rates: Interest rates from specialist lenders are often higher than those from mainstream lenders. This is because they take on more risk by lending to individuals with complex financial situations. However, if a specialist lender is your only option for getting a mortgage, the higher interest rate might be a trade-off you’re willing to make.
3. Deposit Requirements: Specialist lenders may require a larger deposit to offset the risk associated with poor credit or complex financial situations.
4. Broker Advice: A mortgage broker can provide valuable advice and guidance when it comes to choosing a lender. They have extensive knowledge of the market and can help you find the best deal based on your specific circumstances.
5. Your Future Plans: If you anticipate your credit situation to improve significantly in the near future, you might want to consider whether a shorter-term deal with a specialist lender is a good option. Once your credit improves, you may have the option to remortgage with a mainstream lender for a better rate.
Bad credit can affect your ability to get a buy-to-let mortgage in various ways, with different credit issues having different levels of impact. Here’s how each issue you mentioned might affect your application:
Late Payments and Mortgage Arrears: These can cause lenders to view you as a higher risk, particularly if they are recent or frequent. However, some lenders may still consider your application if you can show that the late payments were due to a temporary issue and that your financial situation has since improved.
Defaults: A default on your credit file can make it harder to get a mortgage. The impact of a default can depend on its age and the amount of money involved. Some lenders may still consider your application if the default is old and/or for a small amount.
County Court Judgements (CCJs): CCJs are taken seriously by lenders and can significantly impact your ability to get a mortgage. However, some specialist lenders may still consider your application, particularly if the CCJ is satisfied (paid off) and a certain amount of time has passed since it was registered.
Debt Management Plans (DMPs): While being on a DMP can indicate that you’ve had difficulty managing your debts, some lenders may view it positively as an attempt to get your finances under control. The impact can depend on factors such as how long you’ve been on the DMP and whether you’ve kept up with the agreed payments.
Individual Voluntary Arrangements (IVAs): An IVA can significantly impact your ability to get a mortgage. Many lenders will not consider your application until a certain amount of time has passed since the IVA was satisfied.
Bankruptcy: Bankruptcy is one of the most serious credit issues and can make it very difficult to get a mortgage. Most lenders will not consider your application until a certain number of years have passed since you were discharged from bankruptcy.
Home Repossession: If you’ve had a home repossessed in the past, this will be a significant red flag for lenders. Some specialist lenders may still consider your application, but this is likely to be several years after the repossession, and you’ll probably need a substantial deposit.
Payday loans can have a significant impact on your ability to secure a buy to let mortgage. Even if they have been repaid in full and on time, the fact that you’ve used a payday loan can be seen as a red flag by lenders.
The reason for this is that payday loans are often viewed by lenders as a sign of poor money management or financial distress because they tend to have extremely high interest rates and are typically used as a last resort. This can lead lenders to believe that you pose a higher risk.
If you’ve used payday loans in the past, many lenders will want to see that a certain amount of time has passed since the loan was repaid before they’ll consider your mortgage application. The exact amount of time can vary between lenders, but is often around a year.
However, it’s not impossible to get a buy-to-let mortgage if you’ve used payday loans in the past. Some specialist lenders or brokers are more understanding of such situations and may still consider your application. But it’s important to bear in mind that the rates offered may be higher due to the perceived risk.
Yes, affordability is a significant factor in any mortgage application, including buy-to-let mortgages with poor credit. Lenders will need to feel confident that you can afford to make your mortgage repayments, even if interest rates rise or your circumstances change.
Lenders will look at your other debts and regular expenses to determine whether you can afford to take on a mortgage. If you have high levels of debt or large regular expenses, this could impact your affordability.
If you have poor credit, you’re likely to be offered higher interest rates, which can affect the affordability of the mortgage.
Yes, it’s possible to get a buy to let mortgage with a low credit score, though it may be more challenging than if you had a higher score. Lenders will see a low credit score as a sign of higher risk, which could make them more reluctant to approve your application.
However, there are specialist lenders who are more willing to work with borrowers who have low credit scores or a history of bad credit.
These lenders will typically consider a wider range of factors when assessing your application, not just your credit score. They might look at the potential rental income from the property, your overall financial situation, the reason for your low credit score, and any steps you’ve taken to improve your credit
Applying for a buy to let mortgage with bad credit involves a few specific steps:
1. Understand Your Credit History: Start by getting a copy of your credit report from each of the main credit reference agencies in the UK: Experian, Equifax, and TransUnion. This will allow you to see what lenders see when they check your credit. It’s important to check for any errors or discrepancies on your report, as these can impact your credit score.
2. Improve Your Credit Score: If possible, take some time to improve your credit score before applying for a mortgage. This could involve paying off outstanding debts, ensuring you’re on the electoral roll, and not applying for new credit in the run-up to your mortgage application.
3. Save for a Larger Deposit: Saving for a larger deposit can improve your chances of being approved for a mortgage. This reduces the lender’s risk and could help offset the impact of your bad credit.
4. Calculate Rental Income: For a buy-to-let mortgage, lenders will want to see that the rental income from the property will cover the mortgage repayments. They often require the rental income to be 125–145% of the mortgage payments, though this can vary between lenders.
5. Use a Mortgage Broker: A mortgage broker, especially one who specialises in bad credit cases, can be a valuable resource. They can help you understand your options, find lenders who are more likely to approve your application, and guide you through the application process.
6. Prepare Your Documents: When you apply for a mortgage, you’ll need to provide various documents, such as proof of income and bank statements. Make sure you have all the necessary documents prepared to speed up the application process.
7. Be Honest About Your Credit History: When you apply for a mortgage, be upfront with the lender about your credit history. They will find out anyway when they check your credit, and being honest can help build trust.
Finding a mortgage advisor who specialises in both buy-to-let mortgages and adverse credit can greatly improve your chances of securing a mortgage, especially if you have a poor credit history. These advisors have a deep understanding of the mortgage market and can help you navigate through your options, even in complex financial situations. Here are some types of advisors you may want to consider:
1. Specialist Mortgage Brokers: There are mortgage brokers who specialise in helping clients with bad credit. They work with a wide range of lenders, including those who offer products for borrowers with adverse credit histories.
2. Bad Credit Mortgage Advisors: These advisors focus on helping clients with poor credit scores or adverse credit events (like bankruptcy or CCJs) find a mortgage. They can help you understand which lenders might accept your application and what you can do to improve your chances.
3. Buy-to-Let Mortgage Advisors: Advisors who specialise in buy-to-let mortgages can help you understand the specific requirements and considerations of these types of loans. If they also have experience with adverse credit situations, they can be particularly helpful.
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