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Buy To Let Mortgages With Bad Credit
If you are looking for a Buy to Let mortgage but you have bad credit, it will be more difficult to obtain a mortgage, but certainly not impossible. With regards to a Buy to Let mortgage application, the rules surrounding credit checks and eligibility are much the same as they are with standard residential mortgages. There are specialist Buy to Let lenders out there who will consider your application and the Mortgage Experts that we work with have the knowledge and experience to find you the right deal and take the stress out of the process.
What is a Buy to Let mortgage?
A Buy to Let mortgage is obtained to purchase/remortgage a property as an investment which is let out to tenants. The idea is to let out the property and make a profit on the difference between the monthly mortgage that you pay and the rent that you receive. Most Buy to Let mortgages are taken out on an interest only basis, but you can also choose to take out a full capital repayment mortgage, or part interest only and part capital repayment.
How is a Buy to Let mortgage considered by lenders?
When considering a Buy to Let mortgage application, a lender is looking for what rental yield a property will produce against the monthly cost of the mortgage payments. This calculation is called ICR; Interest Covererage Ratio. Any lender will want some headroom between your mortgage payments and the rent that the property brings in each month to ensure that there will be sufficient gross profit, and also to make sure that in periods of rental voids (when a property is un-let), there should be surplus funds available for the landlord to financially cover this period. Your Mortgage Expert will be able to do the sums and work out what a potential property will need to achieve in rental payment each month, to make the deal work for you.
Can I get a Buy to Let mortgage if I have bad credit?
Yes, you can! As with residential mortgages there are high street lenders who will not accept applications from people who have bad credit. There are also more flexible lenders who specialise in this market and will look at your application differently, applying a manual common-sense underwriting approach within the process. In most instances, Buy to Let mortgages for people with bad credit, will have a higher interest rate than standard high street deals. Your Mortgage Expert will guide you through this process, selecting the right lender to suit your circumstances.
What deposit will I need for a Buy to Let mortgage?
Unlike residential mortgages where deposits can be as low as 5%, Buy to Let lenders will require a higher deposit to mitigate the extra risk involved with these types of mortgages. Most lenders will require 25% of the property’s value as deposit. Certain lenders will accept a 20% deposit, but usually this would be for existing landlords who currently have a least one Buy to Let property and have shown that they have experience in the Buy to Let field.
How do I pay off my Buy to Let mortgage?
As most Buy to Let mortgages are taken out on an interest only basis, you will need to consider how you repay the mortgage balance once your mortgage term comes to an end. This is called a ‘repayment strategy’ and can be from one of many different sources. It may be that you have savings, inheritance, a pension pot or investment earmarked to repay the balance; or you may intend to sell another property or the property that is being let out – these are all options that are acceptable to Buy to Let mortgage lenders. Choosing to put your mortgage on a part interest only and part capital repayment mortgage, or simply making regular monthly overpayments into your mortgage are good ways of bringing down the mortgage balance. Whichever route you decide to choose, it is worth having this long-term plan in place so that you are not left with the original mortgage balance in place when your mortgage is at the end of its term.
As a mortgage is secured against your property, it could be repossessed if you do not keep up mortgage repayments.