Getting a Buy-to-Let Mortgage with Bad Credit

The lenders will consider how many late/missed payments you have on your credit file and how long ago they occurred. One or two isolated late payments several years ago should mean that you will have access to more lenders and lower rates. Multiple late payments within the last year will present a tougher proposition need to be directed towards more specialist lenders. 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.

A default notice is served on a borrower when a number of payments have been missed on a credit agreement – this could be for a loan, a credit card, store card, a hire-purchase arrangement, or similar. The default is usually registered when there have been between 3 and 6 missed payments, and the creditor has already issued one or more letters to advise the borrower they are in serious arrears and could face further action.

Simply receiving the default notice may serve as a catalyst to action – rather than allowing the situation to get any worse – and if you satisfy the default prior to making an application, this may have a positive effect on a lender’s decision.

Lenders will also consider the number of defaults you have, when they were registered and the amounts involved. A smaller default three years ago that was settled quickly will have far less impact that a series of defaults still outstanding from during the last few months. Additionally, the circumstances which led to the defaults may be taken into account – at the time, you may have unexpectedly lost your job or had to pay out significant sums for emergency repairs, but could have returned to a normal situation since that occurred.

So, it is indeed possible to get a Buy-to-Let mortgage with one or more defaults – but a lot will depend on the overall circumstances around the issues. To get an honest appraisal of your options, get in touch with our specialist team today.

A Debt Management Plan (also known as a DMP) is an arrangement which allows an individual to deal with their debts in an easier, more manageable way. It could be that they have accumulated several lines of credit that, for whatever reason, have now become beyond their means to maintain – the DMP enables the debts to be frozen while you pay them off at a more affordable rate by reducing the monthly payments.

However, this does have an adverse effect on your credit file, as you are essentially failing to meet the agreed contractual obligations on the loans with every monthly repayment that is less than it should be, and you may find more ‘missed payment’ entries showing up on your credit report.

It could also be that some commitments within the DMP have defaulted, compounding the issue. DMPs and defaults are very often linked because the situation leading to the need for a DMP in the first place usually means someone has experienced financial difficulties and probably tried to struggle through for a while before entering a DMP to make things more manageable.

So, being in an active DMP when you apply for a mortgage could pose a significant problem, but it does not mean you can’t get a home loan for a Buy-to-Let property. The range of lenders and products available to you will be much reduced, you will need to apply to a specialist bad credit lender and will be expected to pay a higher deposit than standard. Given that the standard deposit for a Buy-to-Let is around 15-25%, and you are likely to be using your disposable income to pay off the DMP, the real issue could be your ability to save up a large enough deposit.

If the DMP is settled and historic, but still less than six years in the past, some lenders may raise an issue, but most will be happy to lend to you if you can show a clean credit record in the time since the DMP was served. The upside of a DMP is that it shows you were willing to take responsibility for your debts and make plans to pay them off as much as possible.

You might be forgiven for thinking that previous bankruptcy – a serious measure where your financial affairs are drastically restricted but your debts are managed or removed – would be a serious hindrance to getting any line of credit granted again, let alone a Buy-to-Let mortgage. However, we have seen that it is entirely possible for someone with a discharged bankruptcy to obtain a property loan – it all depends on your individual circumstances, the amount of time that has passed, the level of deposit you are able to raise, your financial conduct since the bankruptcy was discharged and your financial status at the time of applying.

It’s theoretically possible to apply for a mortgage the day after the bankruptcy is discharged – and there are a handful of lenders who may lend to you in these circumstances – but the criteria and terms will be far more burdensome than if you were to wait a few years. You’ll be expected to supply a substantial deposit, submit a thorough assessment of your finances, and the interest rate on the loan could well be far from competitive. If you’re still having to make payments to creditors due to an income payments agreement, and many of your assets during bankruptcy were taken to pay off debts, then it could be too much of a challenge to apply for a mortgage within three years of discharge.

As ever, time plays a major role in your chances of getting credit or a mortgage after bankruptcy, with adverse credit events finally slipping off your credit reference file after six years. Even after this, though, if you are asked if you have ever been declared bankrupt, you will need to answer honestly. A lender will make a decision based on their individual criteria and how your financial position and credit score has improved since you were declared bankrupt.

It’s highly likely that you will need to get a mortgage from a specialist, non-mainstream lender if you are applying after a bankruptcy. To do this, you’ll need to work with an expert mortgage broker, who will be able to go over all your circumstances and advise you exactly what will be the right option for you going forward.

In the event that you have previously had a mortgage on a property and this property was repossessed due to mortgage arrears, the chances of a successful result from applying for another mortgage are sadly greatly reduced. Especially in the first few years following the repossession, mortgage lenders are going to treat you as a far greater risk than a conventional applicant, and be very wary of lending to someone who has not been able to keep up with repayments previously.

Various factors will influence the lender’s decision, but the greatest concern will be whether or not there is any outstanding debt on the previous mortgage following its sale by the lender. They will also be keen to know who that mortgage was with – if the lender was a member of the same commercial ‘group’ as the one you are applying to, particularly one on the high street, then it could be that you have been permanently blacklisted within the group as a whole.

However, it isn’t all doom and gloom. Niche-market lenders who specialise in servicing people with bad credit issues take a wider view of an applicant’s financial position, will take your behaviour since the repossession into account, and could be willing to consider your application. The amount of time since the repossession also makes a difference – if it has been three years or more, then many lenders will be more flexible.

As a show of commitment and to give greater security, being able to provide a larger than average deposit will also help, although with deposits for Buy-to-Let properties already being higher than usual, this may be a challenge for most people. To get an accurate assessment of your chances for the Buy-to-Let after a repossession, please contact our team to arrange a quick, free, no-obligation consultation.