Can You Get A Buy To Let Mortgage With Bad Credit?

October 31, 2022

Investing in a property to rent out is a popular way of earning extra income. Average rental prices have risen sharply over the past couple of years, and demand outstrips supply, so if you choose the location of your property well, you should have no trouble finding a steady supply of tenants.

However, you will need to take out a specialist buy to let (BTL) mortgage for this particular type of purchase. If you have an adverse credit history, you may be wondering if this affects your prospects of gaining a BTL mortgage deal. 

Any incidents such as missed or late payments, debts, Individual Voluntary Agreements, bankruptcies, debt management plans, and County Court Judgements, are recorded on your credit file for six years. The mortgage lender will look at your credit file as part of their assessment criteria to decide how much financial risk you represent to them.

While the answer to how a poor credit history will affect your prospects depends on how recent and/or severe the adverse events are, in many cases it will still be possible to secure a BTL mortgage deal.  All lenders use slightly different criteria, and some will put more emphasis on the potential income yield of the property, rather than your credit history.

It is important to seek the advice of a specialist mortgage broker if you know that there is anything in your credit history which would cause a lender to view your application unfavourably. This is because an advisor with past experience of bad credit clients will know which lenders are most likely to accept your application.

Remember that rejected mortgage applications will further damage your credit history, so you will need to present your financial situation in the best light. Many people incur debts through no fault of their own, such as illness, redundancy, or natural disasters, so be sure to explain any mitigating circumstances to your advisor.

BTL mortgages are usually interest only, meaning that you only pay the interest on the loan every month, rather than paying off the loan. You will be required to repay the loan in full at the end of the mortgage term, but the monthly repayments will be much lower. However, there are some full repayment BTL mortgage products as well.

Bear in mind that most lenders will require that the monthly rental income exceeds the cost of the mortgage by 125% to 145%. You will have other expenses besides the mortgage to cover to, such as letting agent fees, and maintenance and insurance costs.

You will usually require a higher deposit for a BTL than for a standard mortgage, typically 20% or more. The bigger deposit you can put down, the more attractive you will be to lenders, even if you have a poor credit record.

The usual criteria which apply to standard mortgages will also apply to BTL, so it is important to get your finances in good shape, by limiting unnecessary expenses, and paying all your bills and credit card loans on time. For more detailed expert buy to let mortgage advice, please speak to one of our brokers today.

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

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