Don’t let your poor credit history stop you investing in a rental property. Find out what to consider when thinking about applying for a buy to let mortgage
Don’t let your bad credit stop you becoming a landlord
If you’ve had adverse credit in the past you might think that you’ll find it impossible to get a buy to let mortgage to purchase a rental property.
However, there are bad credit buy to let mortgages out there. You just need to understand where to find them and how you can get one. You also need to understand the pros and cons of becoming a landlord, particularly if you’ve had financial problems in the past.
Whether your poor credit history is due to a previous property repossession, bankruptcy, or defaults on loans or credit cards, once you’re more secure financially, investing in a rental property could help you to continue your financial recovery.
The benefits of investing in a rental property
Historically investing property has been a winner. Property prices have tended to rise and even when crashes have occurred, values tend to rise again. Clearly there are no guarantees, but, as a long-term investment, property is a relatively safe option for most people.
Investing in a rental property means that not only do you gain an asset, but your tenants will be paying your mortgage for you. On top of this the rental level should be enough to also provide additional income for you.
The possible risks of investing in a rental property
As outlined above, as a long-term investment property is pretty secure. However, if you want to access funds quickly and the property market is in a downturn you may not be able to recoup your investment.
It can also be trickier to sell a property with tenants than it is to sell a vacant property, depending on the tenancy agreement, as you’ll need to talk to your tenants before the sale and agree the way forward. With sitting tenants, it is much more difficult, in all likelihood you will be restricted to selling to another landlord.
The benefits of owning a rental property as an investment and source of income obviously only kick in if you can find tenants. Without a rental income coming in you may struggle to cover your mortgage repayments. Missed mortgage repayments have a very strong negative impact on your credit history, something you should avoid at any time, but especially as you try to improve your credit file.
How to make it work
There are some steps you can take when considering what property to buy which can help make the most of your investment.
- Is it the right time for you?
It’s great that you’re considering this route when you’ve had financial difficulties in the past, but it’s also doubly important that you are certain that you are now back on-track financially.
2. Be realistic
Buying a doer-upper to let out seems like an excellent way to maximise your investment. After all you can buy (relatively) cheaply and then charge more rent for a newly renovated property. However, do you have the funds to carry out any necessary repairs or renovations? Or if you’re planning to do the work yourself, do you have the skills and time?
3. Keep being realistic
Talking of time and skills, have you thought about what being a landlord will mean? You’ll need to find and check prospective tenants, as well as maintaining the property. If you’re not confident in doing all this yourself then make sure that you factor in the cost of using an agent.
Of course, if you do decide to go it alone you’ll find loads of help and tips here at LandlordZONE.
4. Pick the right property
Once you’ve decided to make the leap, make sure that you pick the right property. These are just a few of the things you might want to consider
- Are there good transport links?
- Is it within a commuter belt?
- Would it appeal to young families?
- Is the area popular with students?
- What is the average level of rent in the area?
The thing to keep in mind is that you are not buying a home for yourself, you are buying a property that will be attractive to renters.
Find the bad credit buy to let mortgage for you A poor credit history doesn’t mean you won’t be able to find a buy to let mortgage. You may need a bigger deposit and your choice of mortgage lenders may be reduced but it is still possible.
Having said that, lenders generally require a higher deposit for a buy to let property than for standard residential mortgages anyway. Meaning that even with a good credit history you would need to find around 25% of the property’s value before you would be considered.
As with standard residential mortgages, buy to let mortgage lenders will evaluate your ability to repay your mortgage. Your credit history will form part of this evaluation, but it is only part of it. Lenders will also look at your income and your outgoings.
Importantly lenders will also consider the potential rental income of the property you are thinking of buying. The rental income generated by the property should amount to at least 125% of your monthly mortgage repayments. Put simply, if your monthly repayment amount is £400, you should be able to charge at least £500 per month rent. This is one reason that it is important that you follow the advice above regarding picking the right property.
You should also be aware that most buy to let mortgages are interest only. While this makes monthly repayments lower, it does mean that you will be liable to repay the loan amount at the end of the mortgage term. When you take out the mortgage you should consider a plan that will allow you to do this.
In summary if you have a sufficient deposit, your chosen property will generate sufficient rental income and you meet the affordability criteria you should be able to find a lender willing to give you a mortgage. By far the best way to improve your chances is by using a mortgage broker who specialises in working with people with poor credit history, as most high street brokers have no experience of this.
Using an expert broker
At a recognised buy to let expert bad credit mortgage broker like Simply Adverse, you’ll be gaining the benefit of working with professional independent mortgage brokers with experience of finding buy to let mortgages for people with adverse credit.
A broker will have up-to-date knowledge of the current criteria of mortgage lenders and so will be able to advise you which to apply to maximise your chances of being accepted. For example, some lenders are much more willing to take into account the reasons behind your bad credit than others.
If you follow our advice about selecting the right property to buy and using a specialist broker, getting a buy to let mortgage is possible, even with a poor credit history.