If you want to invest in a Buy To Let (BTL) property or are looking for a Buy To Let remortgage, but you are worried that your credit history might stand in the way, you’ll be pleased to know that a growing number of mortgage lenders now offer Buy to Let mortgages in the UK for borrowers with bad credit.
In this article we’ll cover the sort of credit issues that may affect your mortgage application, such as:
The first thing you should do is to confirm what the credit issues are, when they occurred and how much they are for.
Lenders have different criteria when offering Buy To Let mortgages for customers with bad credit history and our guide will help you to understand that most circumstances can be considered.
Your bank might not be the best place to start when looking for a Buy To Let mortgage with bad credit.
Most high street lenders make decisions using an automated credit score and do not specialise in lending to customers who apply for a Buy To Let mortgage with bad credit history, so you could find that your application is rejected.
If you are considering a Buy To Let mortgage and you are concerned that you have bad credit, it is always a good idea to speak to a specialist mortgage advisor, who can search the market for lenders with criteria that meet your circumstances and can even access lenders that you would not be able to approach directly.
In this article we cover common types of credit issue, how they could impact your Buy To Let mortgage application and the options that are available.
First, let’s look at the different types of credit issues, in order of severity.
Low credit score
Credit score is different to credit history.
Your credit history is your past financial conduct, usually only mapped over the last six years, and a credit score is specific to a lender based on its criteria. BTL prime lenders that use a credit score will apply a score to your application based on numerous factors, including your credit history, age, income, LTV and even location.
It is therefore possible to have a low credit score even if you don’t have a bad credit history and a low score could be the result, for example, of frequently changing address or not having a record of taking out credit in the past.
Not all lenders will perform a credit score, but all lenders will look at your credit history.
If you have a low credit score it may be more difficult for you to access the best rates, but there are still many options for Buy To Let mortgages with a bad credit score and be able to borrow up to 85% LTV or even more.
It is worth noting, that too many credit applications on your record can potentially damage your score and may leave you in a worse position as lenders will question why you have so many credit checks on your Buy To Let application.
Working with a reputable, whole of market advisor, who understands and regularly arranges mortgages for people in your situation, is the best way to find adverse Buy To Let mortgage lenders without making multiple failed applications and further damaging your score.
To get a full picture of what lenders can see on your file, we would suggest that you sign up for Experian, Check My File, Equifax and UK Credit Ratings, find access to free trials available here.
It’s a good idea to sign up for all four because the files can differ in terms of what is actually registered. For example, your Experian credit file might be clear, but Equifax might hold something that leads to you being declined.
Whichever report you look at, they are all split into sections in the same way. The main sections are:
Financial account information which assesses activity on all the credit you currently have including credit cards, mobile phones, utilities, loans and mortgages.
Public records information which looks at County Court Judgements (CCJs) and bankruptcy etc.
Credit search history will list all the searches you've had on your credit report by different creditors, insurers etc.
Searching and downloading your own file won’t damage your score as it is only applications for credit and searches by lenders that do this – you can search yours an unlimited number of times without impact.
It’s not uncommon to have a late payment on your credit file and most people have missed a payment at least once in their lives.
Some lenders can be unsympathetic to this and can decline creditworthy applicants due to missed payments on their credit files, but many lenders are able to look beyond a late payment and are able to offer competitive rates and LTVs to landlords who have made late payments in the past.
A lender will look at how many late payments you have on your credit file and how long ago the late payments occurred.
If there were one or two isolated late payments years ago, you will have access to more lenders and better rates, than if you have multiple late payments within the last year.
But there are still adverse credit Buy To Let mortgage lenders that offer competitive rates and are happy to lend to customers who have a recent history of late payments.
It is important to remember that there is a difference between late payments and arrears.
Late payments are isolated payments missed on any type of account. Most creditors allow borrowers until the end of the calendar month before they register it as a formal missed payment on your credit file, so if your payment date is the 1st of the month and you pay it on the 25th, many creditors will not consider it a late payment not report it to credit reference agencies.
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.
Current account overdrafts, phone bills, credit cards, personal loans are all types of unsecured credit. Mortgages count as secured credit as do secured loans.
Arrears are missed payments that remain unpaid for more than one month. Someone is classed as 'in arrears' when they currently owe more than their current month's payments.
Mortgage arrears on Buy To Let properties are viewed in the same way as any other missed payments on a secured loan, especially if the borrower has fallen into arrears for more than one month, as it indicates a real issue in the ability to repay and therefore their overall creditworthiness for a new application.
However, it is not uncommon for a landlord, who may have multiple mortgages on multiple properties, to have encountered a situation where they have fallen behind on the payments on one of these mortgages, perhaps because the property has remained unlet for a period of time.
There are therefore a number of options for customer looking for a Buy To Let mortgage with arrears.
As with late payments, adverse credit Buy To Let mortgage lenders will consider more recent arrears to be more serious than historic arrears and so the rate and LTV you are able to achieve on bad credit Buy To Let mortgage will depend on how many arrears you have on your record and when they took place.
Some lenders can also take a more stance on mortgage arrears if you are able to provide a reasonable explanation as to why the payments were missed and if the issues have been resolved.
Defaults on a borrower’s credit file are one of the most common reasons for Buy To Let mortgages with bad credit history, especially as they stay on your record for six years. A default notice is a formal letter that is sent when a number of payments have been missed on a credit agreement and a default is usually registered when a borrower has between 3 and 6 missed payments.
The good news is that there are more BTL bad credit mortgages for borrowers with defaults than there have been in the past, so, finding a Buy To Let mortgage with a default is certainly possible. If you have defaults on your credit file and you are looking for a Buy To Let mortgage, your options will depend on a number of factors, such as how many defaults you have, how recently they were registered and how much they were for, Lenders will also consider whether the defaults have been paid off, which is also known as satisfied, and other factors such as the amount of deposit you have.
County Court Judgements (CCJs)
As with defaults, there are a growing number of lenders that will consider offering a Buy To Let mortgage to a borrower with CCJs, Each lender will have its own criteria, but in general the main things that lenders will consider are the value of the CCJs, how many you have registered to your name, how recently they were registered and whether the debt has now been paid off, or satisfied.
Simply having a CCJ isn’t necessarily a reason for a Buy To Let mortgage application to be declined and the date of the CCJ is the most important influencing factor. If the CCJ was registered was two or more years ago, you are likely to have more options that if it was registered in the last 12 months. However, there are lenders that can consider customers with CCJs registered just a couple of months ago, so it is always worth speaking to a professional mortgage advisor who can talk through your options.
Debt Management Plans (DMPs)
It is now possible to get a Buy To Let mortgage if you are currently in a performing debt management plan and or if you have recently been in a a debt management plan and we work with specialists who are experienced in arranging Buy To Let mortgages with bad credit history, including DMPs.
A lot of people still in a DMP also have other credit issues. The two can go hand in hand because the situation leading to the individual needing a DMP in the first place usually means that they ran into financial difficulties and it is common for people to struggle through for a while first before seeking the help of a DMP to make things more manageable.
Every customer is different and may or may not be considered based on a number of factors, but in general, borrowers with an active DMP can have some late payments (max 3 months late usually), some defaults (max 2 registered in the last 2 years, any number older than this), some CCJs (max 2 registered in the last 2 years, any number older than this) and still be considered for a bad credit Buy To Let mortgage
If anyone has more severe issues such as IVA / bankruptcy / repossession from the last 6 years and is also currently in a DMP then the likelihood of being accepted is low.
An Individual voluntary arrangement (IVA) can make it harder to get a Buy to Let mortgage, but not impossible and your options will depend on whether you are currently in an IVA or, if it was in the past, how long ago it was registered.
Being in an IVA can limit your options when it comes to applying for Buy To Let mortgages with bad credit history. You’ll usually need to have made repayments satisfactorily throughout the time you've had the IVA and some lenders ask for evidence of two years of payments.
Every lender will have a different criteria in terms of how they interpret the impact of an IVA, but generally speaking the more recently an IVA was set up, and the more credit issues you have, the greater amount of equity will be required to counteract perceived risk.
If you have an IVA then it’s likely you’ll have other associated credit issues which have lead up to the IVA arrangement being made, such as defaults, CCJs and debt management plans so you should expect the interest rate and amount of deposit required to be higher when you apply for bad credit Buy To Let mortgages , depending on how recently it occurred and the severity of the case.
Buy To Let mortgages for discharged bankrupts are possible but as with any type of bad credit, bankruptcy can mean that some mortgage lenders, will flat out decline anyone who's ever had one.
The good news is that there are a handful Buy To Let Lenders that are happy to consider mortgages for people who have been bankrupt. We work with advisors who can help you find the right one if you are interested in applying for a bad credit Buy To Let mortgage.
There are a few specialist Buy To Let lenders that will consider applications for a Buy To Let mortgage after a repossession and, with growing competition between lenders, rates can be surprisingly competitive.
If you have experienced a Buy To Let mortgage repossession in the past and you are looking to secure a new Buy To Let mortgage, your options will depend on a number of factors, such as how long ago the Buy To Let repossession took place and any other bad credit on your credit record. The repossession of a Buy To Let property, could be an isolated incident on your file, if for example tenants have run up rental arrears, or it could demonstrate more that you are experiencing more significant financial difficulties and a lender will want to understand that you can be considered a good risk for any future borrowing.
As with other types of sub prime Buy To Let mortgages, your options will also depend on the rental income that can be achieved by the investment property and the deposit you have to put down.
Who can help me get a Buy to Let mortgage with bad credit?
If you’ve ever experienced any of the above credit problems, and you’re still unsure what to do, get in touch and the bad credit buy to let specialist advisors we work with will look at your case and offer some expert insight into helping you with your problem.
They could even connect you with lenders who specialise in the bad credit BTL mortgages.
What other factors will affect me getting a Buy To Let mortgage in the UK with bad credit?
How affordability affects a BTL mortgage with bad credit
It’s not just your credit file that will affect a decision when applying for a Buy To Let mortgage with bad credit history, affordability will always be key.
As with any other mortgage application, you will need to demonstrate that you are able to afford the payments.
Buy to Let affordability models are based on a combination of the rental income the property can achieve and your circumstances.
For many lenders, if you are a basic rate taxpayer or buying with a limited company, the rental income has to cover at least 125% of the mortgage, assuming the mortgage is charged at 5.5%. For higher rate taxpayers, this increases to 145% or 160%.
Buy to Let mortgage balance = £300,000
Interest calculated at 5.5%
Monthly interest payments = £1,374
This means the monthly rental income would need to be:
125% (basic rate taxpayer)
145% (higher rate taxpayer)
160% (top rate taxpayer)
If you are a portfolio Buy to Let landlord, a mortgage lender will look at your whole portfolio to make sure that you are not overstretching when it comes to borrowing.
A lender may also look at your other assets and liabilities and other income.
If the rental income is not sufficient then the maximum loan available will reduce to fit the calculation. There are, however, some lenders that allow you to supplement the achievable rental income with your personal income.
This is sometimes known as top slicing and this where a landlord uses other earned personal income to top up shortfalls in Buy to Let affordability.
The other consideration when looking at affordability is that rates and fees for Buy To Let mortgages with bad credit history will be higher than if you have had a clean credit record, and this can impact the rental calculation.
How much deposit will I need for a BTL with bad credit?
As with any mortgage, the more deposit you are able to put down, the greater your number of options and having poor credit history could prevent you from accessing some high Loan To Value (LTV) Buy To Let mortgages.
There are, however, many adverse Buy to Let mortgage lenders that can consider Buy to Let mortgages up to 85% LTV or even higher in some instances if they are able to include other assets as part of their lending decision.
How will my age affect my application for a BTL with bad credit?
As affordability on a Buy To Let mortgage is based on the rental income, many lenders take the view that it is responsible and sustainable to lend to Buy To Let investors well beyond their retirement age. Some lenders have a maximum age at the end of the term of more than 100, while other lenders impose no maximum age.
Talk to a bad credit BTL expert today
If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.
Some types of buy to let mortgages are not regulated by the FCA.
Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
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