Buy to Let Mortgages with Bad Credit
If you are looking to purchase your first Buy To Let property or you are an experienced landlord, our team of Buy to Let mortgage advisers would be happy to help you source the right mortgage deal.
With hundreds of mortgage products available on the market speaking to an adviser can make the process of sourcing a buy to let mortgage simple and if you have bad credit registered we have lenders that can help.
Buy to Let Mortgage with Bad Credit
Buy to Let Mortgages with bad credit
If you have bad credit registered such as missed payments, defaults or county court judgements you can still get a buy to let mortgage. There are specialist buy to let bad credit lenders available through mortgage brokers who would consider your application.
What is a Buy to let mortgage?
Buy to let mortgages are specifically for when you want to buy a property to rent out to a 3rd party. Highly popular, professional landlords used buy to lets to enable them to build a property portfolio of rented properties that gave them an income stream whilst enjoying the appreciating price of the property itself. With low interest rates offering next to no return on capital, combined with many people unable to get on the housing ladder for a variety of reasons, renting has become more popular and property investors see buy to let properties as good long term investments.
What deposit will I need for a bad credit buy to let mortgage?
If you are considering becoming a landlord you will need a buy to let mortgage and there are certain things that you should consider before jumping in. Often for example you’ll need to pay a larger deposit as security, often around the 25% level, although some buy to let mortgage lenders need a 40% deposit to secure the very best interest rates. Interest rates tend to be a little higher, but a buy to let mortgage is very similar to a standard mortgage in that each application is individually assessed, so better deals can be available depending on personal circumstances.
How much can I borrow on a buy to let mortgage?
Depending how you are buying/own your Buy to let will determine how much you can borrow, so the following will considered:
- The rental income you will receive.
- Ownership of the property in your personal name or through a Limited Company.
- The mortgage rate you are taking out? - i.e. 2year or 5 year fixed.
- Repayment Basis - Are you taking out a capital and interest mortgage or an interest only mortgage?
Here is an example to give you a guide as to how different set ups can affect the borrowing (rates & criteria as of 23/10/20):
|Mortgage Type||Rate Type||Rental Calculation||Rent Received||Mortgage Possible|
|Personal Name||2 Year Fixed Rate @ 3.24%||Basic Rate Tax Payer - 125% x 5.5%||Rental £600 per month||£104,600|
|Personal Name||2yr Fixed rate @ 3.24%||High Rate Tax Payer - 145% x 5.5%||Rental £600 per month||£90,000|
|Personal Name||5 Year Fixed @ 3.49%||Basic Rate Tax Payer - 125% at pay rate||Rental £600 per month||£165,000|
|Personal Name||5 Year Fixed @ 3.49%||High Rate Tax Payer - 145% at pay rate||Rental £600 per month||£142,000|
|Limited Company||2 Year Fixed rate @ 3.24%||125% x 5.5%||Rental £600 per month||£104,600|
|Limited Company||5 Year Fixed rate @ 3.49%||125% x pay rate||Rental £600 per month||£165,000|
As you can see in the above examples the borrowing can range from £90,000 to £165,000 which is a large difference. There are many mortgage lenders who have different ways in which to calculate your borrowing capacity, so when you are looking for a buy to let mortgage it is best to speak to a mortgage broker who can review the market and outline all your options.
Should I buy a Buy to Let in personal name or as a Limited Company?
As highlighted above the way a Buy to let is structured can have a big borrowing impact, but it can also have a large tax implication. When considering buying a buy to let or you currently own a buy to let you should seek tax advice from qualified persons, who can give you personalised tax advice based upon your circumstances.
Should I take out a Repayment or Interest Only mortgage?
You have the option to have the mortgage set up in either way, however a repayment mortgage monthly payment would be more expensive each month and therefore the borrowing will be less as the rental income has to cover the payment with a surplus. Many property investors choose to take out an interest only mortgage due to:
- Maximise the borrowing possible.
- Lower monthly mortgage payments allowing them to earn an income each month.
- Lower commitments in the situation of changing tenants or non-payment of rent.
- Build up a savings buffer quicker for future changes to the property, maintenance &repair or you may want to purchase another investment property.
However with Interest Only Mortgages you are not repaying the capital that you borrowed initially so at the end of the mortgage term you will still owe the capital you originally borrowed. Many lenders allow overpayments up to 10% per year, so you could take advantage of this to start to repay the capital or make a lump sum payment when your product changes.
Is a Holiday let mortgage the same as a Buy to let mortgage?
No. A buy to let mortgage is where the property is rented out to an individual/family and a standard tenancy agreement is in place for say 12 months, whereas a holiday let will have different tenants potentially every week. Holiday Let Mortgages are only provided by limited lenders and additional considerations have to be factored in, such as occupancy rate throughout the year and the additional maintenance costs that would be incurred.
What bad credit is accepted by lenders?
Unfortunately many people have a poor credit score/profile due to life events. If you bad credit registered against you such as missed payments, defaults, county court judgements or mortgage arrears we have lenders that can help. The key here is when were these were registered, how much was the credit issue for, what type of credit did you default on and have you managed to resolve this issue. The specialist bad credit buy to let mortgage lenders that we work with have a flexible approach to underwriting cases.
How to get a buy to let mortgage with bad credit?
You should speak to experienced advisers who can discuss all the options you have available. The buy to let market has gone through many changes over the last few years and it is certainly more complex than before, so getting the right information is key. You can complete the above enquiry form or call the office to discuss your enquiry.
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