Getting a Buy to Let Mortgage with Bad Credit

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If you have bad credit and want to obtain a Buy to Let mortgage you may be wondering if it is possible. You may have already been declined for a Buy to Let mortgage and want to know what your options are.

The good news is that you may be able to get a Buy to Let mortgage with bad credit – although there are circumstances such as recent Bankruptcy which could be prohibitive in doing so.

This guide examines bad credit and Buy to Let mortgages and explains what you need to do for a successful mortgage application.

What is a Buy to Let Mortgage?

A Buy to Let mortgage is a special mortgage product that allows borrowers to buy property for the strict purpose of letting it for profit. Buy to Let mortgages are unregulated in the UK and you will not have the same financial protections in place as you would if you were arranging a residential mortgage.

A typical Buy to Let mortgage will allow you to make interest only monthly payments. With interest-only products, the capital portion of the mortgage remains throughout the mortgage term and at the end of the mortgage, you will have to pay the capital sum in full.

There are a few ways to pay back the capital on a Buy to Let mortgage, the most popular methods are:

  • Selling the property
  • If your profit margin on rent is enough, using this to pay down the capital
  • Funds from investments

Lenders stipulate that you must let the property to qualify for a Buy to Let mortgage and the rental payments for the property will be stress tested against your mortgage payment. For example, you will need to prove that you can afford the monthly interest only mortgage payment by demonstrating to a lender that the local rental income far exceeds your mortgage payment. This stress test is strict and over the last year lenders have been increasing their stress test thresholds to take the cost-of-living crisis into account.

What is Considered Bad Credit on a Mortgage Application?

Bad credit is a collective term for any negative registrations on your credit file that damage your credit score. When you apply for a Buy to Let mortgage, the lender will process a credit check to assess whether you are a responsible borrower. To do this they search your record with one of the three major credit reference agencies: Equifax, Experian, or TransUnion.

A range of negative marks on your credit file can cause problems with a mortgage. Commonly lenders are most concerned with:

  • Missed payments
  • Defaults
  • Individual Voluntary Agreements (IVAs)
  • County Court Judgements (CCJs)
  • Bankruptcy

This list is not all encompassing and lenders will also note other aspects of your credit record such as the total amount of debt you have and the amount of borrowing you have available to you such as credit cards. These aspects are minor concerns for lenders and it is unlikely that you will be declined on a Buy to Let mortgage application for existing debt levels unless they are abnormally high.

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Can You Get a Buy to Let Mortgage with Bad Credit?

Yes, you can get a Buy to Let mortgage with bad credit and lenders are less concerned about bad credit scores with Buy to Let mortgages compared to Residential mortgages. This is because Buy to Let mortgages have much higher deposit requirements and interest rates which represents less risk to a mortgage lender.

Buy to let lenders are also aware that rental payments from tenants should cover the mortgage payments and give the landlord a profit. Therefore, there is less risk of you defaulting on the mortgage, unlike residential mortgage payments that are entirely reliant on your personal income sources. That doesn’t mean you are given a free pass with bad credit when applying for a Buy to Let mortgage, just that most lenders are a little more flexible with credit score requirements.

If you have significant issues with your credit file, you could still find that your Buy to Let mortgage application is declined due to bad credit. For example, if you have just recently registered a Bankruptcy, it is extremely unlikely that you will be able to get a Buy to Let mortgage. Ordinarily you will need to wait until your bankruptcy has been discharged or you are coming to the end of your bankruptcy period.

Lenders also operate different credit score thresholds for Buy to Let mortgages. You will find that some lenders will not accept a bad credit mortgage at all while others will be happy to receive the application. It boils down to each lenders’ appetite for risk.

What Deposit Will I Need for a Bad Credit Buy to Let Mortgage?

A typical deposit requirement for a Buy to Let mortgage is at least 25% of the property value. Each lender has their own rules about deposits, and you may find that the deposit requirement for your desired mortgage product is higher than 25%.

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How to Get a Buy to Let Mortgage with Bad Credit

Because lenders have different rules about bad credit you will find it difficult to source the best deal by yourself. In fact, there are many mortgage lenders in the UK that have no high street presence or only a handful of branches.

For this reason, you should always speak to a whole of market mortgage broker to find the best deal on any mortgage. This is especially true if you have adverse credit and there is a reduced amount of lenders available to you. You will want to ensure you get the best product for your circumstances.

Speak to a Specialist Broker who Understands Adverse Credit Mortgages

Sourcing a mortgage on your own with a bad credit score can be a nightmare.

First, it is difficult to know which lenders accept bad credit scores and you could go through several applications and be declined each time. Each decline will further damage your credit score and while you may have initially been able to get a mortgage, after many failed applications you may not be able to.

A mortgage broker will be able to match your credit score to a lender and ensure that you only apply when they are confident you will get the mortgage. Our mortgage advice is completely free of charge, hassle-free and no obligation. Get in touch with us today to discuss your Buy to Let mortgage options.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.