Buy to Let Bad Credit Mortgage
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The Financial Conduct Authority does not regulate some Buy to Let Mortgages.
Your property may be repossessed if you do not keep up with your mortgage repayments.
Buy to Let Bad Credit Mortgage
Anthony explains how to get a Buy to Let mortgage if you have bad credit.
Podcast approved by The Openwork Partnership on 20/08/2024
Can you get a Buy to Let mortgage with bad credit?
Yes, you could. It makes it a little bit harder, and you don’t have as many options as if you had perfect credit. There are definitely options available, though.
Some lenders might charge you more interest, and some lenders will immediately decline it – but there’s still plenty of options, depending on how bad the credit is.
What credit issues affect a Buy to Let mortgage application?
There are quite a few. A lot of people think it’s purely based on credit score, but every lender has their own internal scoring system. The score that you get on your credit reference agencies doesn’t really make too much of a difference.
The biggest impacts are missed payments, and the severity of the missed payment will determine how much impact it has. For example, if you’ve missed one £20 payment on a phone bill six years ago, that’s not too much of an issue.
But if you’ve missed six payments in a row on your mortgage, you’ve defaulted or had a CCJ, that will cause a much bigger issue. The more recent the bad credit is, the more impact it has – because it suggests you’ve not been able to look after your finances.
What’s the difference between credit score and credit history?
Credit history probably has the biggest impact when applying for mortgages. A credit score could be different depending on where you look.
We use Check My File with a lot of our customers, because it amalgamates three different credit reference agencies in one place. But if you check Experian, Equifax, Call Credit, and Clearscore, they’ve all got their own different scores. None of them will be exactly the same.
These scores give you a rough indication about your credit, but because there’s such variance and they’ve all got their own metrics on how to make these scores up, they’re not really worth the paper it’s written on.
Whereas your credit history is more like a report card. It shows how you’ve performed in looking after your finances over the past six years.
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What credit score or credit history do you need for a Buy to Let mortgage?
It’s hard to say on score. I’ve had clients in the past that have had a high score of 900 on some reports, but they’ve been declined. Yet the same lender has accepted someone with say a 650 score.
It all depends on so many factors. The main part lenders look at is the history. You could still get a mortgage even if you’ve had missed payments on certain financial commitments. It just might limit your options if you’ve had a lot of missed payments that are very recent.
Are there specific lenders who specialise in Buy to Let mortgages with bad credit?
Yes, there are quite a few. They will charge you a little bit more in interest and there’ll be quite a few extra loopholes to jump through because they’re taking on more risk.
They need to make sure they’re doing their due diligence to make sure that they’re not going to have to repossess your property at some point. Plenty of lenders will do it, they just charge you slightly more for the privilege.
What type of Buy to Let mortgages for bad credit are there?
You’ll find all the same types. If you wanted an interest-only five-year fixed rate Buy to Let mortgage, for example, someone with perfect credit or someone with terrible credit will have the same options. It’s just that the interest rates might be slightly higher on the bad credit side.
How much deposit is required for a Buy to Let mortgage with bad credit?
It depends on the lender. The majority of lenders are still happy with a 25% deposit. With Buy to Let you inherently need to put down more deposit than on a house for you to live in yourself.
But with a bigger deposit comes a cheaper rate. So if the deal doesn’t stack up because the interest rates are so much higher, we may need to have a look at putting down a bigger deposit so that the deal works financially.
What are the affordability criteria for a bad credit Buy to Let mortgage?
It all comes down to the rental income rather than your own personal income. Having said that, some lenders will require a minimum personal income, of perhaps £20,000 to £30,000. Some lenders don’t need any income at all.
But the affordability is solely based on how much the property rents out for in comparison to the mortgage payments. Every lender’s got their own calculation, but what tends to happen is the cheaper the rate, the more they’ll lend you, because there’s more profit margin there for you.
So, as you can imagine, with Buy to Let rates being more expensive for people with bad credit, it could make it harder to get over the line on affordability. At that point, some lenders charge a much lower interest rate to make the deal stack up in regards to the rental income.
But to make sure they’re not losing any money, the product fees could be quite expensive.
How will bad credit affect a joint buy select mortgage application?
People often think that if they have an amazing score and their partner’s got a terrible one, it will average out as an OK score. But that’s just not how it works, unfortunately. They solely look at the worst score and base it all around that.
So if you’re applying for a mortgage with someone who has bad credit, that’s whose score they would use.
How can a mortgage broker help with a bad credit mortgage?
With bad credit, it’s a hard thing to do on your own, because you need to make sure that the numbers all work on the deal you’re looking at. The payments will be that little bit higher.
It’s worth running through the numbers with a broker to see what rates you’re going to qualify for, before you make an offer on any properties. While one particular deal might stack up for someone who’s got perfect credit, it might cost you £150 or £200 a month more because of your bad credit and the higher interest rate. A deal that might look amazing at first glance may be completely thrown off because of that.
So it’s always worth checking up front with your broker to guide you on what the payments will be and potentially seek out a better deal.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Approved by The Openwork Partnership on 20/08/2024
Your home may be repossessed if you do not keep up with your mortgage repayments.
