Case Study - Buy to let with adverse credit

Categories: Case study | buy to let mortgages | bad credit and debt

Summary of the case

  • Property was 3 bedroomed terrace house
  • Client only owned this one buy to let, no other property
  • Client had previously had a CCJ and missed payments on borrowing

What we achieved for the client

  • Mortgage interest rate was 6.99%
  • New buy to let remortgage rate became 2.89%
  • Raised £8,600 capital for personal use

First time landlord with previous adverse credit

This landlord came to us when their buy to let mortgage was approaching its renewal date. They were not a homeowner, their three bedroom terrace house was the only property the client owned.

In the past, the client had had a CCJ as a result of missed payments. The interest rate the client was on was high, and our job was to reduce the rate to secure lower monthly payments on the next deal.

Another feature of this case was that the client was not a homeowner. You might wonder why this would even be a factor. There are a couple of reasons why this is a consideration for buy to let mortgage lenders.

Another consideration for us was the client’s desire to raise £8,500 from the property.

Can a first time buyer get a buy to let mortgage?

Yes, first time buyers can get a buy to let mortgage, subject to the wider circumstances of the borrowing they need. Not all lenders accept first time buyers though.

Where normally the affordability of a buy to let mortgage is based on the rent the property will attract, and not the applicants’ personal income, with first time buyers, personal income will be taken into consideration.

The reason buy to let mortgage lenders often assess personal income, where the applicant is a first time buyer, is because as the mortgage is the client’s first, they want to give further protection to them.

A lender will want to ensure that the mortgage is affordable for the applicant to maintain, in circumstances where the rent is unpaid or any other change occurs that puts pressure on the mortgage being paid.

Can you buy a buy to let with bad credit?

Where lenders see evidence that an applicant has struggled to repay debt, for any reason, many will be unwilling to offer new lending to that person. However, this is not always the case, some lenders actively seek to help borrowers who have had credit issues.

The amount, recency and status of the debt will affect a lenders decision to accept an applicant.

The following rules around bad credit buy to let mortgage applications illustrate ‘the line in the sand’ where it may/may not be possible for you to secure a deal, based on the most flexible criteria available at the time of writing.

Can I get a buy to let mortgage with a DMP, DAS, IVA or bankruptcy?

You cannot get a buy to let mortgage if you have been subject to a:

  • Debt Management Plan (DMP)
  • Debt Arrangement Scheme (DAS)
  • Individual Voluntary Arrangement (IVA)
  • Bankruptcy

Within the last 12 months. If any of the above were settled over a year ago, it may be possible to secure a buy to let mortgage.

Can I get a buy to let mortgage with a CCJ or Default?

You may still be able to get a buy to let mortgage even if you have been subject to a:

  • County Court Judgement (CCJ)
  • Default
  • Secured loan arrears

Within 12 months, subject to the lenders criteria. Unsecured loan arrears are accepted and are not assessed under the most flexible criteria currently available.

A lender will usually mitigate the risk of their debt not being paid by charging a higher interest rate. This can be difficult where you are trying to escape a situation of historical bad or adverse credit.

You may choose to use a buy to let mortgage to consolidate debt, because the interest rate on a buy to let mortgage payment is less than you would pay via other means.

If you do, think carefully before securing other debts against your property. Your property may be repossessed if you do not keep up repayments on your mortgage.

And be mindful that by consolidating your debts into a mortgage you may be required to pay more over the entire term than you would with your existing debt.

When does adverse credit start to impact a buy to let application less?

At the time of writing, it will take 12 months for a paid and satisfied CCJ, Default, or Secured Loan Arrears to have less of an impact on a buy to let mortgage application. At this juncture, more lenders will consider an application but not all.

Once you are outside a three year period, then the majority of lenders will consider an application from you.

Not all types of adverse have the same impact though. For example, a CCJ for a parking fine may not be taken into consideration by a lender at all.

Don’t underestimate or overestimate your circumstances

As a broker, clients come to us with very different pictures of their credit position. Some can be fearful that a relatively modest ‘blip’ on their credit history will be a huge barrier to the potential to borrow, when it may not be.

Other clients can underestimate their position, and overlook what in a lender’s eyes is a more serious credit profile issue. Sometimes it can be easy to forget that life admin gets overlooked, but where that results in borrowing being unpaid it can cause unexpected issues.

The best thing you can do is be very clear with your mortgage advisor on your position so they can advise you.

What we achieved for this client

We were able to approach lenders who were comfortable with the client not owning any other property.

Fortunately, time had passed since the client had resolved their adverse credit issues, which meant that we were able to approach a wider range of lenders that would previously have been unwilling to consider this case.

The 2.89% per annum mortgage interest rate we managed to secure for the client was a huge improvement on the product that was previously in place, at 6.99% per annum.

What’s more, we raised the £8,600 the client required and still reduced the client’s monthly mortgage outgoings significantly. Over 5 years the reducing the clients outgoings in mortgage payments amounted to £5,989.