Buy To Let Bad Credit Mortgages

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When it comes to applying for a Buy to Let Mortgage, having bad credit can make securing a mortgage more difficult and less straight forward than if you have a good credit history. This is due to the fact that lenders may view you as being higher risk so there are likely to be fewer options available to you.

There are different types of bad credit and the severity of it may affect how easy it to secure a mortgage. For example, if you have small credit ‘blip’ such as one missed payment or the poor credit is historical, you may still be accepted by a mainstream or high street lender.

However, if your bad credit is more severe, it may be that you need to approach a specialist lender. Our expert advisers here at The Mortgage Masters can help you navigate the mortgage market and ensure that you approach the right lender for your circumstances, giving you the best possible chances of mortgage success and securing the best possible product available to you.

What is a Buy to Let Mortgage?

A Buy-to-Let (BTL) mortgage is a loan secured on a property that is rented out to tenants for investment purposes. These mortgages are often interest-only, meaning the monthly payments cover only the interest charges, not the loan’s principal. It is illegal to rent out a property with a standard residential mortgage without first obtaining consent from your lender.

Affordability for a BTL mortgage is assessed differently from a residential mortgage. Lenders primarily focus on whether the rental income will be sufficient to cover the mortgage payments, with some allowance for periods when the property may be vacant. You can find out more about how Buy to Let Mortgages work here.

What credit issues may affect my chances of securing a Buy to Let Mortgage?

There are various credit issues that may affect your ability to secure a Buy to Let Mortgage. Factors that lenders will consider include:

• What sort of credit issues you have experienced • When your credit issues occurred • The values of your credit issues • Whether the issues are now resolved.

Many mainstream lenders credit score and therefore if your credit is far from perfect, your application may be declined. However, many specialist lenders have a more flexible approach and can assess your application on a case by case basis.

Examples of bad credit that may concern lenders are highlighted below:

Late and missed payments

Many people make a late payment or miss one altogether in their lifetime. Some lenders may view late payments negatively, but most understand that they are a common issue and not the most serious credit concern. Many mortgage lenders still offer competitive rates and loan-to-value ratios to landlords with a history of late payments and specialist lenders will investigate the reasons behind the late payments more thoroughly.

A late or missed payment on an unsecured account, like a credit card, phone bill, or personal loan, is generally seen as less concerning than a missed payment on a secured loan, such as a mortgage. The number of late payments and how recent they are will influence how seriously lenders assess the situation.

Mortgage Arrears

Mortgage arrears occur when a borrower falls behind on their mortgage payments. This means that one or more monthly payments have not been made by their due date. Being in arrears can have serious consequences, including additional fees, damage to the borrower’s credit score, and potentially even repossession of the property if the situation isn’t resolved. The more recent and substantial the arrears, the greater the risk of being declined for a mortgage.

However, lenders recognize that landlords may occasionally miss buy-to-let mortgage payments, especially during periods when properties are vacant between tenants. If your arrears happened a few years ago, or if you can explain the circumstances and demonstrate that they were resolved promptly, lenders are more likely to consider your application favourably.

Defaults

A default occurs when a borrower fails to meet the agreed repayment terms of a loan or credit agreement. This usually happens after multiple missed payments over a period of time. Once a default is recorded, it is typically registered on the borrower’s credit report, which can significantly impact their credit score and ability to obtain credit in the future.

It is still possible to be approved for a buy-to-let mortgage even if you have a default on your credit file. However, approval will depend on factors such as the number of defaults, how long ago they occurred, the total amount involved, and whether they have been repaid. Your options may be more limited with a bad credit buy-to-let mortgage, and you might be required to provide a larger deposit and accept a higher interest rate.

You can find out more about getting a mortgage with a default here.

County Court Judgements

A County Court Judgment (CCJ) is a type of court order issued in the UK when someone fails to repay money they owe. It is typically filed by a creditor after attempts to recover the debt have been unsuccessful. Once a CCJ is issued, the debtor is legally required to repay the amount specified in the judgment, either in full or through a payment plan.

Having a CCJ on your credit record can significantly impact your ability to obtain credit, including loans and mortgages. If the debt is paid off within 30 days of the judgment, the CCJ can be removed from your credit file. Otherwise, it remains on your record for six years, even if the debt is later paid off.

When assessing a bad credit buy-to-let mortgage application, lenders consider several factors related to CCJs. These include the number of CCJs on your credit file, their total value, how long ago they were issued, and whether the debts have since been repaid.

Debt management Plan

A Debt Management Plan (DMP) is an informal agreement between a debtor and their creditors to help manage and repay unsecured debts, such as credit cards or personal loans. Under a DMP, the debtor makes a single monthly payment to a debt management company, which then distributes the funds to creditors based on an agreed-upon plan.

If you are currently in a debt management plan, it is still possible to obtain a bad credit buy-to-let mortgage. However, you will likely be required to provide a larger deposit and may face a higher interest rate.

Individual Voluntary Arrangement Plan

An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement between a debtor and their creditors to repay debts over a set period, typically five to six years. It is designed for individuals who are struggling with unmanageable debt and want to avoid bankruptcy.

IVAs can make it more difficult to secure a BTL mortgage but there are specialist lenders who have a more flexible lending criteria. Your options will vary based on several factors.

Lenders will consider whether you are still currently in an IVA and when it was established. They will also want to verify that you made consistent and timely repayments throughout the duration of the IVA.

Getting a BTL mortgage with an IVA is still possible, but you may face higher interest rates or be required to provide a larger deposit. Find out more about securing a mortgage with an IVA here.

Bankruptcy

Bankruptcy is a legal process that occurs when an individual or business is unable to repay their outstanding debts. It provides a way to eliminate or reorganize debts under the protection of the bankruptcy court.

You can still secure a BTL mortgage if you have been discharged from bankruptcy although you may have to approach a specialist lender unless the bankruptcy is very historical.

Find out more about securing a mortgage with bankruptcy here.

Repossessions

There are specialist Buy-to-Let mortgage lenders willing to consider your application even if you have experienced a repossession. Lenders will closely examine how recent the Buy-to-Let mortgage repossession was, as well as any other forms of bad credit you may have. If the repossession of the Buy-to-Let property was an isolated incident, you are likely to be viewed more favourably.

What factors will help me get a BTL mortgage if I have bad credit?

Lenders don’t just look at your credit profile in isolation when considering your eligibility for a mortgage. Although a poor credit rating can limit the number of lenders you can approach, you can mitigate the perceived risk by offering a higher deposit, which results in a lower loan-to-value (LTV) ratio. Lenders will assess your current income and outgoing as well as the expected rental income from the property you wish to mortgage.

Should I use a mortgage adviser to help me with my BTL mortgage if I have bad credit?

Having bad credit doesn’t automatically mean that you can’t invest in a BTL property. However, working with a mortgage expert will ensure that you are approaching the right lender to ensure that your applications are successful and thus not damaging your credit file further.

Our expert brokers here at The Mortgage Masters can help you navigate the market of specialist lenders. We scour the market to ensure you have access to the best possible deals available for your circumstances.

Get in touch for more information or to see how we can help.

Your home may be repossessed if you do not keep up with repayments.

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