Buy to let mortgages with bad credit

Buy to let investors always wonder what the effect of bad credit could do to their buy to let mortgage applications and if there are buy to let mortgage lenders out there who focus of buy to let mortgages with bad credit. The good news is that there are buy to let mortgages for those with bad credit.

In this brief guide, we will cover what you can expect if you want to get a buy to let mortgage and you have bad credit.

Buy to let mortgages are mortgages which you can use when you intend to buy a property and rent it out. There are also consumer buy to let mortgages but these are for accidental landlords who did not intend to become buy to let landlords.

But to let mortgages usually have a higher rate of interest than residential mortgages and you will usually be required to put down a mortgage deposit of about 20%with most buy to let mortgage lenders offering loan to value rates of around 80%.

When looking for bad credit buy to let mortgage you may find that most high street mortgage lenders will not provide these sort of mortgages. You will ideally need to go to non-high street mortgage lenders.

Business buy to let mortgages which most buy to let mortgages fall under are unregulated by the Financial conduct authority and this means if anything goes wrong you may not be able to claim compensation from the financial services compensation scheme.

Can you get a buy to let mortgage with bad credit?

Yes, there are specialist mortgage lenders who may be willing to offer you a buy to let mortgage with bad credit but most specialist buy to let mortgage lenders will assess applications on a case by case basis and then make a determination of if they will offer a mortgage.

When looking to get a buy to let mortgage with bad credit you can reasonably expect to have to put down a bigger mortgage deposit so the mortgage lenders loan to value rates are lower. You can also expect the mortgage rates on the buy to let mortgage to be slightly higher in line with the risk the buy to let mortgage lender feels you expose them to with your bad credit.

As mentioned before the buy to let mortgage lender will consider buy to let mortgage applications with bad credit on a case by case basis and decide which they can lend to. You may want to consider using a buy to let mortgage broker who has experience of finding mortgage options for bad credit borrowers with bad credit.

When considering buy to let mortgages bad credit could be:

A CCJ

An IVA

A debt management plan

A default

A bankruptcy

A home reposession

A BTL mortgage with a county court judgement

Some bad credit buy to let mortgage lenders will consider lending to borrowers who have had a County Court Judgement as long as it has been satisfied whilst other bad credit buy to let mortgage lenders will want to see the total value of the CCJs regardless of if they have been satisfied to determine if the borrower fits within their lending criteria.

Each buy to let mortgage lender will have a different way in which they treat CCJs. If having a CCJ is a major concern for you and your main bad credit issue then you may want to contact a specialist mortgage broker who may be able to offer you advice on getting a buy to let mortgage with bad credit.

The buy to let mortgage lender may lend to you with bad credit but may insist that you put down a bigger mortgage deposit.

A BTL mortgage with an individual voluntary arrangement

Getting a buy to let mortgage if you have had an individual voluntary agreement in the past may be difficult depending on your personal circumstances. Buy to let mortgage lenders do not like to see borrowers who have been in such dire situations where they have to go into an individual voluntary agreement.

If you are currently in an individual voluntary agreement then you may find very few buy to let mortgage lenders who may be willing to lend to you and some will impose a minimum term since you have been in an individual voluntary agreement before they will consider lending to you.

A BTL mortgage with a debt management plan

Getting a buy to let mortgage if you have had a debt management plan in the past may be difficult depending on your personal circumstances. A debt management plan is just as bad as an individual voluntary agreement and you may find that many buy to let mortgage lenders will have similar frameworks when dealing with both. Buy to let mortgage lenders do not like to see borrowers who have been in such difficult financial situations where they have to go into a debt management plan.

If you are currently in an individual voluntary agreement then you may find very few buy to let mortgage lenders who may be willing to lend to you and some will impose a minimum term since you have been in an individual voluntary agreement before they will consider lending to you.

A BTL mortgage with a default

If you have had a default before on your credit file then getting a buy to let mortgage with such bad credit may be hard. It all depends on how much the default was for, how long it has been since the default and what your credit behaviour has been since you had the default. Different buy to let mortgage lenders will have their own criteria for considering this and you should ensure you have done some basic research before applying to a buy to let mortgage lender with bad credit.

Alternatively, you may be able to use a bad credit mortgage broker to advise you on getting a buy to let mortgage with a default.

A BTL mortgage with a bankruptcy

Getting a buy to let mortgage if you have had a bankruptcy may be hard as most buy to let mortgage lenders will have different criteria on what sort of borrowers they can accept. Some buy to let mortgage lenders may be willing to accept you if you have been discharged from bankruptcy within 12 months whilst others will use 12 months as the minimum term in which you must have been discharged from bankruptcy.

If you want to get a buy to let mortgage and you have had a bankruptcy in the past you can expect t put down a bigger mortgage deposit and pay higher rates on your buy to let mortgage.

A BTL mortgage with a home repossession

If you have had a home repossession in the past then getting a buy to let bad credit mortgage may be very difficult and if you find buy to let mortgage lenders willing to offer you a buy to let mortgage after a home repossession you can expect to see loan to value rates of 65% and lower to reflect the buy to let mortgage lenders perceived risk.

The rates on the buy to let mortgage may also be higher than usual.

A specialist mortgage broker may be able to help you find buy to let mortgage lenders who may be willing to lend on your specific type of bad credit and circumstances.

In any case where you have bad credit it may be worth looking to buiild some credit before applying to a buy to let mortgage lender.

What else can affect your affordability for a bad credit buy to let mortgage?

Aside from the above the mortgage lender will usually want to see a minimum income which is typically £25,000 for a buy to let mortgage although there are some buy to let mortgage lenders with no minimum income requirement

The rent payments on the buy to let property will usually have to cover at least 120% (for basic taxpayers) of the monthly mortgage repayments at the very minimum but for a bad credit applicant the mortgage lender may request up to 180% coverage and even more.

How much mortgage deposit will you need for a Buy to let mortgage with bad credit?

The bigger the mortgage deposit you put down the better your buy to let bad credit mortgage options may increase. You will typically need to put down a mortgage deposit of around 20% at the very minimum if you are a buy to let borrowers with bad credit but this isn’t a figure for everyone as each individual circumstance will likely be different.

Will my age affect my application for a BTL with bad credit?

Buy to let mortgage lenders do consider your age but you will find plenty of buy to let mortgage lenders with no minimum age requirement or maximum age requirement at which the mortgage term should have ended by.

Typically mortgage lenders will like to see that a mortgage term ends by 75 or by the time the borrower reaches their retirement age.

How to improve your chances of a buy to let bad credit mortgage?

There are a few things which you can do which may generally improve your chances of getting a buy to let bad credit mortgage. They include:

Buying a standard property

There is nothing worse (or maybe there is) than trying to get a buy to let bad credit mortgage and then having a non-standard construction property.

non-standard construction properties are much harder to get mortgages for due to their unique features which make valuing them for today or assuming their future values much harder.

This is bad for mortgage lenders as mortgage lenders want to know that if they have to reposses a home they could possibly get their money back in full rather than have to offer a massive price cut to entice potential buyers.

Having a bigger mortgage deposit

A bigger mortgage deposit reduces the mortgage lenders loan to value rates and therefore reduces some of their risks. If you put down a bigger mortgage deposit you may find that your option of mortgage lenders willing to give you a buy to let bad credit mortgage may increase.

Having a guarantor

A guarantor who could guarantee about 75% of your buy to let mortgage may be helpful if you have bad credit.

A guarantor buy to let mortgage may be hard to find and if you intend to seek one out then using a specialist mortgage broker who assists buy to let borrowers with bad credit get a guarantor buy to let mortgage may be a good idea.

Having some collateral

Some specialist buy to let mortgage lenders who accept bad credit borrowers may accept collateral as a way of securing the buy to let bad credit mortgage and ensuring they have some fail-safe if you default on the mortgage.

Collateral can make it much easier for a buy to let mortgage lender to lend to you but not all buy to let mortgage lenders will accept collateral.

If the collateral is your main ploy to get a buy to let mortgage with bad credit then you may want to consider seeking the help of a specialist mortgage broker who assists buy to let borrowers with bad credit.

Being an experienced buy to let landlord

Experienced buy to let landlords with portfolio buy to let properties may find it easier to get a buy to let mortgage with bad credit as the mortgage lender will look more favourably on them due to their history of repayments with other but let mortgages (if available) and their experience in the buy to let market.

If you aren’t an experienced buy to let landlord then getting a joint mortgage buy to let with an experienced buy to let landlord may make the mortgage lender look upon you more favourably.

Having a regular job

Trying to get a buy to let bad credit mortgage whilst self-employed will be a much harder task as the mortgage lender will find it difficult to rely on your personal income to cover the monthly mortgage repayments if you are self-employed.

This could be the case if the property remains vacant for a prolonged period or the tenant’s default on their rent payments. There are some mortgage lenders who may consider you even as a self-employed borrower but you may need to have a strong application.

How to get ready for a buy to let bad credit mortgage application?

When looking to make a buy to let bad credit mortgage application there are certain things you can do on your own to ensure you put yourself in the best position.

Use a specialist mortgage broker

Consider using a bad credit mortgage broker or specialist mortgage broker. When looking for a mortgage mortgage brokers will usually have access to a wider pool of mortgages than you due to all the technology they may use to search the market. They will certainly have access to more mortgages than any specific buy to let mortgage lender and may have access to as much as 11,000 mortgage products.

This means they can potentially find you a better mortgage deal than doing it alone or going directly to a mortgage lender.

If you have bad credit issues or other problems then using a mortgage lender will ensure you are able to receive relevant advice.

Try to build your credit score

Your credit score can make a big difference on what loan to value rates a buy to let mortgage lender offers you. A few points in your credit score can, therefore, make the difference from you paying a few thousand pounds extra or less. Building your credit score may take some time to try and do it in advance.

Check your credit report for errors or missing information

There are 4 credit reference agencies. There are 4 Credit reference agencies in the UK Crediva, Experian, Equifax and Transunion.

You should check all of them to ensure your credit report is accurate on all of them. You can do this by requesting your statutory report on each of them or you could also get a free 30 day trial from checkmyfile as they display your credit report from all four credit reference agencies in the UK.

Get your documents ready

Depending on if you are a self-empoyed borrower or not you may need a certain list of documents but they will usually include:

Your bank statements

Your P60 tax return form

Your payslips for the past 3 months

If you are self-employed they may also include:

Your CV

Your SA302 tax calculation forms

Your contracts (if you have any)

A cover letter explaining any gaps in employment

How to build credit for a buy to let bad credit mortgage application?

Before we discuss how to build credit let’s address a few things which do not appear on your credit score and you shouldn’t worry about within reason.

They are:

  • You salary
  • Gambling activity
  • Your student loan repayments
  • Parking fines
  • If you check your credit score
  • Criminal records
  • Council tax payments
  • Savings accounts (Only your current accounts are shown)

A few ways you can look to build credit before making a buy to let bad credit mortgage application:

Register to vote.

This is pretty simple. By appearing on the electoral roll on your current address your credit profile will look stronger and your credit score may increase.

Get a secured credit card

A secured credit card is a credit card which you can get after paying down a deposit. They allow you to show that you can make your repayments on a credit card as you continue to use them and repay every month. This adds positive repayment marks on your credit profile.

Reduce your credit utilization

Limit your credit utilization on your credit cards to below 30% as this will show you are less dependant on credit and allow your credit score to likely increase.

Make all your monthly credit repayments on time is a no brainer. Do this and you should see your credit score rise.

Use a credit builder loan

A credit builder loan is a product designed for those with bad credit to allow them to show good credit behaviour by paying back a loan.

Get a credit builder loan which will allow you to show that you can make regular monthly repayments which appear as positive signals on your credit report.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.