Right to buy mortgage with bad credit

A bad credit buy to let mortgage is a buy to let loan from a lender whose criteria accept adverse credit, such as missed payments, defaults, county court judgments, a debt management plan, an individual voluntary arrangement or a past bankruptcy. It is assessed on the property's rent, like any buy to let, and on the borrower's credit history. The adverse credit decides which lenders will consider the case, the maximum loan to value and the price, and the rental test then sets how much the rent supports.

Remortgaging to buy a second property with bad credit is possible with specialist lenders, but the lenders on both the remortgage and the buy to let or second home mortgage must accept your credit history, which narrows the choice of lenders and can mean a larger deposit. Lenders look at the type of each entry, its age, its size and whether it has been settled. In our experience adverse credit lending on a home usually stops at around 90% loan to value. Each lender's criteria and underwriting decide the case.

Bad credit does not change how the buy to let rental calculation works: the lender still tests the expected rent against the mortgage interest at a stressed rate, using its own cover ratio. In our experience lenders test at 5.5% on a two-year fix and 4.5% on a five-year fix, with 125% cover for companies and basic-rate taxpayers and 145% for higher-rate taxpayers. Bad credit can still change the result, because where a lender tests a heavier tier's product at a higher rate, the same rent supports a smaller loan. The lower of the rent limit and the loan to value limit sets the loan.

A first-time landlord with bad credit can get a buy to let mortgage from some lenders, but the options are fewer, because some lenders that accept adverse credit also ask for landlord experience or for the applicant to own their home. Older, satisfied adverse credit, combined with owning a home and a larger deposit, widens the choice. The rental test applies in the usual way. In our experience most lenders no longer set a £25,000 minimum personal income, although some still ask for personal income at a level they set.

Yes, a director's or significant shareholder's bad credit affects a limited company buy to let application, because lenders check the personal credit of the people behind the company. A company set up to hold property usually has little or no credit history of its own, so the directors' files carry the weight, and one director's adverse credit can narrow the lender list for the whole application. Lenders draw the shareholder line differently: in our experience some do not underwrite shareholders who are not directors, some underwrite every shareholder, and some disregard holdings under 19%, or 24% and below.