Getting a buy to let mortgage with bad credit

Don’t let your poor credit history stop you investing in a rental property. Find out what to consider when thinking about applying for a buy to let mortgage

Don’t let your bad credit stop you becoming a landlord

If you’ve had adverse credit in the past you might think
that you’ll find it impossible to get a buy to let mortgage to purchase a
rental property.

However, there are bad credit buy to let mortgages out
there. You just need to understand where to find them and how you can get one. You
also need to understand the pros and cons of becoming a landlord, particularly
if you’ve had financial problems in the past.

Whether your poor credit history is due to a previous
property repossession, bankruptcy, or defaults on loans or credit cards, once
you’re more secure financially, investing in a rental property could help you
to continue your financial recovery.

The benefits of investing in a rental property

Historically investing property has been a winner. Property
prices have tended to rise and even when crashes have occurred, values tend to
rise again. Clearly there are no guarantees, but, as a long-term investment,
property is a relatively safe option for most people.

Investing in a rental property means that not only do you
gain an asset, but your tenants will be paying your mortgage for you. On top of
this the rental level should be enough to also provide additional income for
you.

The possible risks of investing in a rental property

As outlined above, as a long-term investment property
is pretty secure. However, if you want to access funds quickly and the property
market is in a downturn you may not be able to recoup your investment.

It can also be trickier to sell a property with tenants than
it is to sell a vacant property, depending on the tenancy agreement, as you’ll
need to talk to your tenants before the sale and agree the way forward. With
sitting tenants, it is much more difficult, in all likelihood you will be
restricted to selling to another landlord.

The benefits of owning a rental property as an investment
and source of income obviously only kick in if you can find tenants. Without a
rental income coming in you may struggle to cover your mortgage repayments.
Missed mortgage repayments have a very strong negative impact on your credit
history, something you should avoid at any time, but especially as you try to
improve your credit file.

How to make it work

There are some steps you can take when considering what
property to buy which can help make the most of your investment.

1. Is it the right time for you?

It’s great that you’re considering this route when you’ve had financial difficulties in the past, but it’s also doubly important that you are certain that you are now back on-track financially.

2. Be realistic

Buying a doer-upper to let out seems like an excellent way to maximise your investment. After all you can buy (relatively) cheaply and then charge more rent for a newly renovated property. However, do you have the funds to carry out any necessary repairs or renovations? Or if you’re planning to do the work yourself, do you have the skills and time?

3. Keep being realistic

Talking of time and skills, have you thought about what
being a landlord will mean? You’ll need to find and check prospective tenants,
as well as maintaining the property. If you’re not confident in doing all this
yourself then make sure that you factor in the cost of using an agent.

Of course, if you do decide to go it alone you’ll find loads of help and tips here at LandlordZONE.

4. Pick the right property

Once you’ve decided to make the leap, make sure that you
pick the right property. These are just a few of the things you might want to
consider

• Are there good transport links?
• Is it within a commuter belt?
• Would it appeal to young families?
• Is the area popular with students?
• What is the average level of rent in the area?

The thing to keep in mind is that you are not buying a home
for yourself, you are buying a property that will be attractive to renters.

Find the bad credit buy to let mortgage for you A poor credit history doesn’t mean you won’t be able to find a buy to let mortgage. You may need a bigger deposit and your choice of mortgage
lenders may be reduced but it is still possible.

Having said that, lenders generally require a higher deposit
for a buy to let property than for standard residential mortgages anyway.
Meaning that even with a good credit history you would need to find around 25%
of the property’s value before you would be considered.

As with standard residential mortgages, buy to let mortgage
lenders will evaluate your ability to repay your mortgage. Your credit history
will form part of this evaluation, but it is only part of it. Lenders will also
look at your income and your outgoings.

Importantly lenders will also consider the potential rental
income of the property you are thinking of buying. The rental income generated
by the property should amount to at least 125% of your monthly mortgage
repayments. Put simply, if your monthly repayment amount is £400, you should be
able to charge at least £500 per month rent. This is one reason that it is
important that you follow the advice above regarding picking the right
property.

You should also be aware that most buy to let mortgages are
interest only. While this makes monthly repayments lower, it does mean that you
will be liable to repay the loan amount at the end of the mortgage term. When
you take out the mortgage you should consider a plan that will allow you to do
this.

In summary if you have a sufficient deposit, your chosen
property will generate sufficient rental income and you meet the affordability
criteria you should be able to find a lender willing to give you a mortgage. By
far the best way to improve your chances is by using a mortgage broker who
specialises in working with people with poor credit history, as most high
street brokers have no experience of this.

Using an expert broker

At a recognised buy to let expert bad credit mortgage broker
like Simply
Adverse, you’ll be gaining the benefit of working with professional independent
mortgage brokers with experience of finding buy to let mortgages for people
with adverse credit.

A broker will have up-to-date knowledge of the current
criteria of mortgage lenders and so will be able to advise you which to apply
to maximise your chances of being accepted. For example, some lenders are much
more willing to take into account the reasons behind your bad credit than
others.

If you follow our advice about selecting the right property
to buy and using a specialist broker, getting a buy to let mortgage is
possible, even with a poor credit history.

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