Buy to let mortgages with bad credit

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About Martin Alexander

Martin has been a mortgage advisor for over 15 years. Check to see if you qualify or give us a call on 0800 195 0490. mortgage reviews

Getting a buy to let mortgage with bad credit can be easier than most people think. It’s common for applicants with credit issues to worry about whether or not they’ll be approved. With the right advice, getting a buy to let mortgage is possible irrespective of your credit score.

Property investment can be a smart financial move. Rental income should provide you with a financial boost each and every month. Extra income can also help to alleviate pressure on your credit file. Furthermore, a buy to let property is likely to build equity over the years which can be utilised if finances become tight.

But, what if you have bad credit?

This guide will explain how each credit issue can impact your buy to let mortgage application. There are other factors such as affordability, loan to value and whether or not you’ll be eligible for a buy to let mortgage. which we’ll also cover in this guide.

You can make an enquiry if you have any further questions or want to get your application started.

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What is a buy to let mortgage with bad credit?

A buy to let mortgage with bad credit is a loan used by investors with poor credit to purchase a property to then rent to tenants. Investors do this with the aim of charging enough rent to cover the mortgage and possibly making a profit each month.

A regular buy to let mortgage often isn’t suitable for investors with poor credit. As a result, specialist buy to let mortgages may be better suited. Furthermore, you may need a specialist lender depending on how severe your credit issues are.

It’s possible to get a buy to let mortgage with the following credit issues:

  • Late payments
  • Defaults
  • Mortgage arrears
  • CCJs
  • Debt Management Plan (DMP)
  • IVA
  • Bankruptcy
  • Repossession
  • Use of payday loans
  • Low credit score

Buy to let mortgage lenders for bad credit

Lenders each have their own internal procedures for mortgage approval. Some lenders may decline you due to having bad credit, whereas other lenders won’t. It first helps to understand the different types of lenders that you can approach.

Lenders can be put into two broad categories, such as:

  • Mainstream lenders
  • Specialist lenders

It’s often thought that specialist adverse credit lenders are an obvious choice for mortgages that involve bad credit, however this isn’t always true. Depending on your credit issues, you could find that you’re eligible with a high street lender. Nonetheless, you’ll still need the right advice, approach and a watertight application to gain approval.

Some credit issues are more severe than others and at times, lenders won’t even consider the issues if they happened such a long time ago.

Approaching mainstream lenders

Walking into a high street bank and applying on your own isn’t recommended when you have adverse credit. By doing so, you risk being declined which can bring your credit score down, so do be careful. This is because the majority of high street lenders typically decline buy to let mortgages with bad credit.

Mainstream lenders focus largely on clients with clean credit. Furthermore, the bank’s advisors are only there to sell you their lender’s mortgage deals. This is understandable, as the bank is employing them for that very reason. But from a consumer’s perspective, you could be missing out on hundreds of better deals.

Buy to let is an investment, so it boils down to squeezing the most from your mortgage. Getting the best buy to let deal should be at the forefront of which mortgage to apply for.

How can you be sure you’re getting the best mortgage deal if you’ve only spoken to one lender? This is why it makes sense to shop around. That doesn’t mean to say you should make multiple applications with multiple lenders. This will leave hard footprints all over your credit file which will only damage your credit file.

Should I use a specialist lender?

Adverse credit lenders specialise in mortgages that involve bad credit. If you need a buy to let mortgage, an adverse credit lender could be a viable option.

Specialist lenders typically charge higher rates when compared to other lenders. This is because they specialise in mortgages that involve more risk and in areas where other lenders aren’t prepared to lend. Buy to let mortgages with bad credit are a good example of this.

Don’t let the possibility of higher rates deter you from going to a specialist lender. Rates are sometimes better with specialist lenders than mainstream lenders. The deals you’re eligible for will depend on your credit issues and the details around them. Furthermore, having a sizeable deposit can also help to secure a great deal.

The majority of specialist lenders will only lend through a mortgage advisor. This can work in your favour, as an advisor can apply once they’re sure there aren’t any better deals available elsewhere.

Finding the most suitable lender will ultimately depend on your circumstances and your credit issues. You can speak to an expert if you’re still unsure by making an enquiry.

How does bad credit impact a buy to let mortgage?

Having issues on your credit report can mean different things for different people. For instance, a missed payment on your credit file is completely different to a CCJ. Furthermore, an IVA is completely different from having defaults. But what does this mean when you’re applying for a buy to let mortgage?

It helps to check your credit file before you apply for a mortgage. By doing so, you’ll be able to see exactly what lenders will see when they carry out their credit checks. Applicants are often surprised as their credit reports aren’t as bad as they imagined. Furthermore, it also gives your advisor more information to prepare your application.

 check your credit report

Late payments and mortgage arrears

Late payments aren’t considered to be a severe credit issue and shouldn’t really get in the way of your buy to let mortgage. That doesn’t mean to say you’ll be accepted by every lender available.

Some lenders are extremely strict in their criteria and any sign of late payments can be a big red flag. Furthermore, the type of late payments you have on your credit file can also impact your chances of approval.

Having paid your mortgage late is perhaps the most severe form of late payments. On the other hand, if you’re no longer in mortgage arrears, it can certainly help your mortgage application.

Late payments on unsecured credit such as phone bills are considered to be less severe. There are lenders that just won’t accept late payments of any type, so you’d be better off avoiding them.

Lenders will typically focus on the number of late payments you’ve had and how recent they were. Recent payments that were made late will have more of an impact on your buy to let mortgage in comparison to issues that happened a long time ago.

If your late payments have accumulated into arrears which are still outstanding, then it can become a sticking point for lenders. The majority of lenders can understand if you’ve missed the odd payment, but having accumulated arrears can be a huge warning sign.

Getting a buy to let mortgage after late payments shouldn’t be difficult. It’s advised to speak to a specialist who has experience in this field before applying to a lender. This way, you’ll minimise the risk of your application being declined.

Defaults on your credit file

How do defaults affect a buy to let mortgage? If your default happened over six years ago and you’ve had clean credit since, you shouldn’t have any problems gaining mortgage approval. This is also subject to meeting buy to let criteria such as affordability.

If you have a default on your credit file that’s less than six years old, then certain lenders are likely to decline you. There are lenders that may accept your case; however, you’ll increase your chances of mortgage approval by consulting an advisor.

You’ll typically be assessed on the size of your defaults, the number of defaults you have and how recent they were. Lenders show preference to smaller defaults that happened some time ago. If you have large defaults that are quite recent, then it can be even more difficult to get a buy to let mortgage. That said, mortgage approval may still be possible.

Having a default can involve a lot of different variables. If you’ve had defaults then don’t approach lenders yourself. You’ll risk being declined which won’t help your future chances of getting a mortgage. Speak to one of our advisors who has experience in this field and they’ll search to see if there are any suitable lenders.

Buy to let mortgage with a CCJ

Getting a buy to let mortgage with a CCJ is possible with the right approach. Applying to lenders yourself is not advised.

The majority of lenders will look at the following in reference to your CCJ:

  • Date your CCJ was registered
  • Value of your CCJs
  • The number of CCJs you have
  • Have the CCJs been satisfied or not

The chances of getting a buy to let mortgage greatly improve if your CCJs were registered over two years ago. Having a CCJ within the last year can make mortgage approval difficult. Nonetheless, a handful of lenders may be willing to offer you a mortgage subject to meeting the rest of their criteria.

The value of your CCJs and the number of CCJs you have will also play a part in a lenders decision to offer you a mortgage. Having satisfied your CCJs helps to strengthen your buy to let application.

Learn more about applying for a mortgage with a CCJ here.

Infographic on buy to let mortgages with bad credit

What if I have a DMP (Debt Management Plan)?

Securing a buy to let mortgage whilst in a DMP is possible. If you have a DMP, the chances are you’ll need a specialist lender. That said, if you were in a DMP some time ago and you managed to repay your debt, you may be able to approach mainstream lenders.

The main issue with having a DMP is that it often involves other credit issues. It’s these credit issues that can usually become stumbling blocks rather than the DMP itself.

The purpose of a DMP is to help manage debt. Lenders will assess how you’ve managed your debt during your DMP. Good financial conduct will help your mortgage assessment, whereas further debt will be detrimental.

Buy to let mortgages that involve debt management plans are considered specialist cases. This is because there are a lot of variables within the case that an advisor would have to consider before approaching a lender.

IVA (Individual Voluntary Arrangement)

Attempting to get a buy to let mortgage with an IVA is difficult. The number of lenders available will be limited, however, there are options to explore.

If you have an active IVA, lenders will assess your financial conduct and whether you’ve made repayments on time. Some lenders may delve deeper into your credit file along with the fine details of your IVA.

Applying for a buy to let mortgage after an IVA has been completed is often easier. This is because it allows lenders greater insight into your financial conduct since completing your IVA.

Having had an IVA will often involve other credit issues. As a result, lenders will assess all credit issues involved and their severity. An IVA itself is considered to be a severe form of bad credit; however, it also shows lenders that you’ve taken the responsibility to resolve your credit problems.

Read more: Can I get a mortgage with an IVA?

Discharged bankrupts

You’ll need to be discharged from your bankruptcy if you want to apply for a mortgage. Getting any type of mortgage during your bankruptcy simply isn’t possible.

Getting a buy to let mortgage after bankruptcy is possible and perhaps easier for experienced advisors to place. This is because many lenders simply won’t lend with any mention of bankruptcy, even if you were discharged many years ago. Advisors are therefore able to eliminate such lenders and focus solely on those that are suitable.

If you’ve been discharged from bankruptcy recently, then a specialist lender may be better suited. If you were discharged over six years ago, then an advisor may be able to approach a wider range of lenders which can give you access to better mortgage rates.

What if my home was previously repossessed?

If you need a buy to let mortgage after being repossessed, in all honesty, you will struggle. That said, it all depends on when the repossession took place and the circumstances around why it happened.

There are specialist lenders available who will consider applicants if they’ve had a property repossessed in the past. Many clients who have previously been repossessed typically have other credit issues. Lenders will assess every credit issue as part of your application.

If you were repossessed over six years ago and have kept an immaculate credit file since, you may qualify for some competitive deals. Nonetheless, repossession is a severe form of adverse credit. As a result, buy to let lenders will be very thorough when assessing your credit file.

If you’ve previously had a buy to let property that’s been repossessed, lenders may take a more lenient stance. Landlords can often be victims of rogue tenants who simply don’t pay their rent. If you’ve been in this situation but can document an otherwise good financial profile, it can certainly help your application.

Learn more: How to get a mortgage after repossession.

Ask a mortgage broker

Buy to let mortgage after using payday loans

Many applicants are surprised when we tell them that payday loans can have a negative impact on mortgage approval. Using payday loans simply doesn’t bode well with lenders.

Financial experts will agree that using payday loans should be a last resort. This is usually because of extortionate interest rates, which typically puts borrowers in further financial difficulty.

By using payday loans, it gives lenders the view that you’re not financially stable. The use of such loans will also be present on your credit file. If you’ve used payday loans within the last year, you may find it difficult to find a mainstream lender and would perhaps need a specialist.

Lenders will also check to see how often you’ve used payday loans. The more loans you’ve had, the more difficult it will be to a get mortgage. Nonetheless, speak to a specialist who can look at whether there are any suitable lenders.

Find out more about payday loans and mortgages here.

How does a low credit score affect a buy to let mortgage?

If you have a low credit score as opposed to bad credit, getting a buy to let mortgage shouldn’t be difficult.

A credit file is compiled of your credit history and outlines your financial conduct and often covers the past six years. Nonetheless, lenders may ask you to disclose issues that happened over six years ago.

A credit score is generated from numerous variables, such as address history, age and footprints. For instance, if you’ve frequently changed address or have had numerous applications for credit within a short space of time, it can lower your credit score.

It’s possible to have a low credit score without having had any credit issues whatsoever. Despite this, lenders may still see low score applicants as high risk.

Find out how to repair your credit file here.

How to get a bad credit buy to let mortgage

Despite having bad credit, there are certain things you can do to improve your chances of getting a buy to let mortgage. Underwriters will assess your credit file, but more importantly, they’ll assess your application as a whole.

To get a buy to let mortgage with bad credit, it helps to have:

  • A large deposit (aim for at least 25%)
  • Evidence that you’ve recovered from financial trouble
  • A recent period of good credit
  • An advisor experienced in adverse credit mortgages
  • A reliable source of income
  • Rental income covering 125% of the buy to let mortgage

Some lenders can be quite forgiving when it comes to bad credit. Many borrowers face financial hardship at least once in their life. If you can show lenders that you’ve now recovered and your finances are in order, it can greatly improve your chances of getting a buy to let mortgage.

Showing that your rental income will cover 125% of the mortgage can help ease concerns from lenders. Many lenders also make this a condition of how they assess the investment property you wish to purchase.

Advisors that specialise in buy to let and adverse credit

Experienced advisors can prepare your mortgage application to make sure it’s watertight. Furthermore, buy to let lenders will largely base their affordability checks on the rental income of the property.

Consult an advisor who has experience in both bad credit and buy to let. All of our advisors are specialists in this field and you can ask them your questions at any time.

If you’re still experiencing credit issues, it may be better to wait until you’re financially stable before applying.

You can make an enquiry if you’re still unsure about what to do. Our specialists can also help you with your application.

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