What Is The Difference Between Your Credit Score and Your Credit File?
These are two different things. Your credit file, or credit history, is a report that shows your financial conduct over the last six years.
Your credit score, in contrast, is a score assigned by a credit referencing agency according to their own specific scoring criteria.
Most buy-to-let lenders with experience in the bad credit market will consider both factors, and will also look at things such as:
- Your age
- Income and employment
- The loan-to-value (LTV) ratio
- The property in question
Therefore, even if a credit referencing agency has given you a bad score, a specialist lender might be happy to consider your application based on your credit file and other circumstances.
All lenders will take a look at your credit history, but some will place more importance on the score than others. Having a low credit score can make it more difficult to find a buy-to-let mortgage, with mainstream lenders often restricting the LTV (i.e. the amount they will lend as a proportion of the value of the property).
One essential factor is that you should avoid making multiple applications with lots of lenders. Where these involve a hard credit check, you will rack up more marks on your credit file, even if every application is rejected, which can make getting a buy-to-let mortgage all the more difficult.
Revolution Brokers are an independent whole market broker with years of experience in negotiating BTL mortgages for landlords with a low credit score.
You can also access your own credit files from agencies such as Experian, Equifax and TransUnion to get an idea of your credit score, and to ensure the reports are up to date and accurate.
It is wise to request reports from all three providers because they can be quite different. If you have inaccuracies on one report and not another, the likelihood of a mortgage application being accepted will depend on which agencies the lender chooses to use.
Credit reports show:
- All financial accounts with credit facilities: including things like loans, mobile phones, utility bills and other mortgages.
- Information about financial conduct, such as CCJs and bankruptcy.
- Credit searches showing how many lending providers have run a search on your credit file.
If you download your own file, this has no impact on your credit history. Personal searches do not show to anybody but you, and you can revisit your credit file as often and as many times as you wish.
BTL Mortgages for Landlords with a Late Payment Record
Many landlords will have missed a payment at some point, so having a late payment on your credit report isn't unusual.
Some mainstream lenders will automatically reject applications from adverse credit applicants with any missed payments - even if your financial conduct is otherwise spotless. This means it is essential to apply to the right lenders.
Other lenders might offer uncompetitive rates, or very low LTVs, whereas specialist BTL mortgage lenders who offer buy to let mortgage with bad credit products might be able to negotiate more attractive terms.
Mortgage brokers will consider how many late payments you have had, and when they happened to assess your credit record.
A small number of late payments further back on your credit file are much less severe than having a long history of late payments, particularly if some were very recent.
That said, bad credit mortgages and buy-to-let mortgage providers will consider other financial circumstances and may still be happy to lend by carefully designing a debt management plan.
Late payments and arrears are two different things, with late payments being less serious. This could be reported on your credit file if you were late with a bill payment outside of the calendar month in which that bill was payable.
For example, if a bill falls due on the 1s of the month, and you pay it on the 25th, most lenders will not report this as a late payment to the credit reference agencies.
If late payments were on unsecured loans, such as a credit card or mobile phone, they are also less serious than late payments on secured credit such as a mortgage.
Applying for a Buy-to-Let Mortgage with Mortgage Arrears on Your Credit File
Arrears are more severe than late payments and mean that you fell behind with debt for longer than one month. Usually, this means owing more than the amounts due for the current month.
This can be a decision-making factor for some lenders, as falling into arrears indicates liquidity or financial issues, which means you are less likely to be able to keep up to date and on time with payments than somebody without any arrears.
However, many landlords with more extensive portfolios will have fallen behind on payments at some point, and this could be for a valid reason, such as a property being vacant for an extended period.
The more recent the arrears, the more of an issue it is likely to be, and a BTL mortgage lender will consider how many arrears have been reported, and when these took place.
Suppose you can explain the reason for the arrears to provide some context, and this demonstrates that the same situation is unlikely to recur. In that case, a specialist lender is far more likely to be able to approve your mortgage application.
Landlord Mortgages for Applicants with Defaults
One of the most common reasons for a landlord to contact Revolution Brokers for help with a buy to let mortgage with bad credit scenario is due to defaults showing on their credit file.
Defaults remain on your file for six years and usually happen when a lender has sent a formal notice because you have missed payments. They are generally reported to the credit referencing agencies when between 3-6 payments have been missed.
We work with multiple respected BTL bad credit lenders who can consider applications with defaults, and they will ask about what happened and why, and consider other eligibility criteria to be able to make a decision.
This includes looking at:
- How many defaults you have?
- How recently they happened?
- What values were involved?
- Whether they have now been paid?
County Court Judgements (CCJs) and Applying for a BTL Mortgage
If you have a CCJ on your credit file, mainstream lenders are unlikely to be able to offer a buy to let mortgage with bad credit for a certain period. The conditions under which a lender will extend an offer to an applicant with a history of CCJs depends on:
- How much were they for?
- How many CCJs have you had?
- How recently were they registered?
- Whether the debt has now been repaid?
Many specialist lenders will not reject an application immediately because there is a CCJ on your credit file.
The longer ago this happened, the more lenders are likely to be able to make you an offer. A professional mortgage advisor can help to assess the best lenders to apply to and will know whose eligibility criteria you are likely to meet.
Buy-to-Let Lending After Debt Management Plans (DMPs)
Debt management plans or DMPs have in the past meant that it is almost impossible to secure a new buy to let mortgage with bad credit. However, as the bad credit market grows, there are now specialist lenders who will consider applicants with low credit scores, including those with DMPs.
A DMP is often indicative of other credit issues, and having multiple debts getting out of control is the primary reason for a DMP to be in place.
Each lender will look at their own criteria to decide whether they can lend to an applicant with a DMP - typically, they will be more likely to consider cases where:
- There is a DMP and some late payments up to a maximum of three months late.
- There are some defaults, usually up to two registered in the past two years.
- There are some CCJs, with up to two registered in the last two years.
In any of these cases, if you have an active DMP, you are still able to secure mortgage lending against a BTL property from a specialist lender.
If you have other credit issues, such as bankruptcy, repossession or an IVA within the last six years, as well as a DMP, you are less likely to be able to find competitive lending.
Can I Get a BTL Mortgage If I am in an IVA?
Individual Voluntary Arrangements, or IVAs, will make it more challenging to find a BTL mortgage, but it isn't impossible. A lot depends on whether your IVA is current or in the past and, if so, how long ago.
Usually, you will need to demonstrate that you kept up with your IVA mortgage repayments, and will sometimes be asked to provide documentation showing two years worth of transactions.
Each lender is different, but the more recent the IVA and the more serious the surrounding credit issue, the more complex it is to secure a competitive BTL mortgage.
Where you have an IVA and other problems, such as debt management plans, defaults and CCJs, the interest rates available and deposit requirements will often be higher than on a standard buy to let mortgage.
How Can I Get a Buy To Let Mortgage After Bankruptcy?
Bankruptcy is a severe credit issue, and many lenders will refuse to lend to any landlord who has a bankruptcy on their credit file and adverse credit issues like bad credit history.
However, specialist bad credit mortgage BTL lenders can consider previously bankrupt applicants for a specifically designed mortgage product although, in this scenario, it is vital to work with an expert bad credit broker especially if you have poor credit history.
Can a Landlord Get a BTL Mortgage After Repossessions?
If you have had a property repossessed in the past, you can still apply for a buy to let mortgage with bad credit through a bad debt mortgage broker, and the rates on offer are sometimes very competitive.
The type of lending and why you can apply to will depend on:
- When the repossession happened.
- What other credit issues show on your file.
For example, if you had a property repossessed following problems with tenants falling into severe arrears with their rent, then this might be more acceptable. Also, if you have missed mortgage payments in the last three months, you will likely not be able to secure a buy to let mortgage. A missed payment is usually recorded formally in the credit file at the end of the month.
With all subprime buy to let mortgages, the lender will also assess the anticipated rental property income of the property, and how much deposit you have available.
Which Lenders Should I Apply to for a BTL Mortgage with Bad Credit?
The essential factor in securing a bad credit BTL mortgage is to work with an experienced broker, who can connect you with niche lenders who offer the right sort of products.
What Factors Impact My Ability to Get a UK Bad Credit Buy to Let Mortgage?
There are lots of factors to consider; with credit history being just one. Lenders will look at things like affordability and how much deposit you have as well as considering your credit report.
How is Affordability Calculated for a BTL Mortgage with Bad Credit?
Affordability is a test to work out whether you are likely to keep up with your BTL mortgage payments - i.e. whether you can afford the lending you are applying for.
If you have bad credit, then this assessment becomes an even more critical part of the application process.
How Does Affordability Work For Landlord Mortgages With Poor Credit?
Buy to let lenders will need to check that you can afford the lending and will need to know whether you are a basic rate or higher rate taxpayer.
For landlords paying basic rate tax, you will usually be asked to prove that the rental income will add up to 125% of the mortgage payments when tested on an example 5.5% interest rate.
If you are a higher rate taxpayer, the rental income will need to make from 145-160% of the mortgage value.
As an example, if you are applying for a £300,000 BTL mortgage, with the example interest rate of 5.5%, your monthly repayments will be £1,374.
You will, therefore, need to prove projected rental income of:
|
Basic rate taxpayer - 125%
|
£1,720
|
|
Higher rate taxpayer - 145%
|
£1,992
|
|
Top rate taxpayer - 160%
|
£2,200
|
For portfolio landlords, a BTL lender will want to assess the rest of your properties before making an offer to lend to ensure this remains affordable.
BTL bad credit lenders will also ask to look at any other assets, other debts or liabilities, and your income to assess affordability.
Some lenders will allow you to use 'top-slicing', which means you can add your personal income to the calculations to assess whether your mortgage application is affordable.
Other factors to consider are the rates and fees chargeable, as if you have bad credit then a landlord buy-to-let mortgage is likely to be more expensive than for applicants with a clean credit history. Therefore, the projected rental income will need to be higher to cover the correct percentage of mortgage payments and fees.
What Deposit Will I Need for a BTL Mortgage With a Low Credit Score?
The higher your deposit, the lower the rates and the more options you have when looking for a bad credit BTL mortgage. A higher deposit makes the LTV ratio lower, which means more lenders will be able to consider your application.
Some of the Revolution lenders will consider bad credit buy to let mortgages with an LTV as high as 85%, so it's all about what you need to borrow, what your circumstances are, and whether you have other assets available as security.
Is Age a Factor When Applying for Buy to Let Lending with Poor Credit?
Age restrictions vary between lenders. Some will not lend to applicants over 75 or 85, whereas others have no age cap and often lend to retired landlords or property investors.
