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YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
All about bad credit remortgages with Graham Sharkey.
Yes, you can. But if you have more than a minor problem with your credit score then you won’t be able to remortgage with a high street bank.That’s where it can get a little bit more complicated because you’ll need to use a specialist lender.
You’re much more likely to be successful using a specialist broker to find a lender that tolerates whatever the issues might be, but you can absolutely remortgage with bad credit.
It depends what the bad credit is. Sometimes people think that they have bad credit but are not really sure what the issue is. We need to find out exactly what the current status of any bad credit is and when it was registered, so we’ll always generally ask a client to register for a copy of their credit file through check my file – (We give no endorsement and accept no responsibility for the accuracy or content of any sites linked to this site).
They provide an overview of all of the credit reference agencies in the UK, Transunion, Equifax and Experian. Sometimes we find inconsistencies in the way the adverse credit is reported, so it allows the client to challenge any errors. Once we’ve highlighted exactly what the credit issue is, we can broker a range of specialist lenders that are willing to lend, and find out which is offering the most suitable terms for the client.
Yes, unfortunately, any lender reserves the right to decline a mortgage application. However, brokers can help to avoid this by pointing you in the right direction. Having adverse credit doesn’t mean your application will be declined, if it’s with the right lender.
High street banks don’t often provide bad credit remortgages, but there are lenders that cater for this, and a good broker will ensure that you’re placed with the correct lender.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Anyone that can pass a lender’s credit score can get a Buy to Let mortgage – and credit scores would normally need to be strong to pass with most lenders. We do have access to a handful of lenders that will tolerate some adverse credit for Buy to Let, however.
With most lenders you’ll already need to be a homeowner, having an active residential mortgage is not a problem. The majority of lenders will also require you to meet a minimum salary requirement – usually £25,000, although some accept less.
Most lenders will usually require a 25% deposit as a minimum. Although again some lenders will accept smaller deposits of say 20% or even 15% deposit, but these will be more expensive products.
Unlike residential mortgages where affordability calculations are based on the applicant’s earned income, the amount you can buy on a Buy to Let mortgage is based on the potential rental yield of the property.
It means that the monthly rental will need to meet the lenders ‘stress test’. These vary from lender to lender, but focus on whether you can still pay the mortgage payments from the rental income if interest rates increase, or if the property is empty for a few weeks or months of the year.
The client’s tax position – whether they are a higher or a lower taxpayer – could affect this equation. It can also vary based on the product type selected. So, for example, a five year fixed rate allows you to borrow more than a shorter fixed rate.
It can get very confusing, but your mortgage broker will analyse this for you and recommend the most suitable solution. The main point to know is that the greater the rental yield, the more you can borrow, up to a maximum borrowing level which is usually 75%.
In addition to the required deposit, a Buy to Let purchase is subject to the same costs as a traditional residential purchase. You have the survey fee plus lender arrangement fees or booking fees relating to the mortgage product. You have a broker fee and the solicitors’ costs including the standard legal disbursements.
A large cost to consider is stamp duty because in addition to the standard charges, you’ll be liable for an additional three percent on the purchase price – as per the stamp duty rules when you own more than one property.
Once you’re a landlord you have many responsibilities in addition to monthly mortgage payments. You’re also liable for ensuring the property is safe to live in through repairs and maintenance. You also need to ensure a gas safety check is done by a qualified engineer annually, and an electrical safety check is required every five years. You’ll also need to ensure the building is insured – which we can help you with.
The tenant really is only required to pay for utility bills, contents insurance and council tax and obviously the all important monthly rental payment, which hopefully gives you as a landlord some level of profit.
You’re not allowed to take out a residential mortgage with the blatant intention of letting the property out straight away. You do need a Buy to Let mortgage – or to purchase the property outright in cash.
Sometimes people buy a residential property and, after living in it for a period of time, their circumstances change. They might decide to keep the property but move out and let it to a tenant. In this situation, you have two options.
You can approach your existing lender and ask for permission to let. They will likely grant this in the short to medium term, but may charge a fee or change the rate. The alternative and more correct way of doing it is to remortgage onto a Buy to Let mortgage and repay the previous mortgage. It can then be let long term.
You must not rent out property on a residential mortgage without gaining permission to let from the lender. That would be a breach of your mortgage terms. We can advise clients on their options in a situation where they need to let their property.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Some buy to let mortgages are not regulated by the Financial Conduct Authority.
Having any of these on your credit file will affect your mortgage choices, but it certainly doesn’t rule out lending altogether. For CCJs and Defaults, the more historic the registration, the better chance there is of securing a mortgage. The date that it was resolved (if it has been) is also important, because some lenders will insist on it being resolved prior to application. We also need to consider the number of CCJs and/or Defaults a client has in total, the more you have the less choice of lenders that are available. Lastly the value of the CCJ or Default can also be a factor, and the larger the value, the less choice of lenders there will be.
For Bankruptcy and IVA it can be a bit trickier, but we can still apply for a mortgage, it has a lot to do with timing again. You won’t be able to apply until you’ve been officially discharged from bankruptcy, which usually takes about twelve months. For IVAs, lenders have been known to lend during an IVA if it’s conducted satisfactorily, but it’s much easier if you’ve completed it before applying.
The mortgage assessment will follow very strict guidelines so the rest of your application needs to be very strong, so it’s important that your application is presented in the best possible manner to a suitable lender, which is where brokers come in. Each year that goes by your bankruptcy or IVA becomes less relevant and lenders are more likely to approve your mortgage with a lower deposit and on lower interest rates.
If you’ve been discharged from bankruptcy for around four years, most lenders will view you as no different to anyone else. After six years any credit issues will drop off your file. With all these scenarios the larger the deposit you have, the easier it is to overcome these issues and find a suitable mortgage lender.
You can whilst you’re still in a Debt Management Plan. Lenders will want to see that you’ve maintained the payments on the plan in a satisfactory way and you will need to leave a larger amount of equity in the property.
You’ll need to obtain statements from the company managing your Debt Management Plan showing the outstanding balance, if you decide to remortgage whilst you’re in the plan.
That’s a difficult question to answer accurately because the rates are reflective of the risk the lender is taking, and that risk is quantified by the amount of equity available in the property and the level of adverse credit.
Somebody who’s missed a credit card payment on the odd occasion in the last year would achieve a much better rate than somebody who has just finished an IVA. For somebody with very light adverse issues and lots of equity, we may be able to get them through with a high street bank at normal rates. For something a bit more serious, like a missed mortgage payment, you’ll need a 15% deposit and probably be paying about 0.65% more on the rate of the best equivalent high street products.
Someone that’s in a Debt Management Plan with three CCJs in the last two years and three missed mortgage payments two years ago, would need a 20% deposit and could expect to pay around 2.5% more than the equivalent high street rate.
Yes, there are a good few. There is less choice than if you didn’t have any adverse credit, and are sometimes referred to as subprime lenders or adverse credit lenders. They are comfortable lending to clients that fall into this category and they understand that sometimes there’s a good reason behind why people end up with Bad Credit.
The key points to improving your credit rating that we’d recommend are to check your credit report, make sure the information is correct and that all of your accounts and credit cards are listed. If details look wrong you may need to contact the credit reference agency to correct this.
Check any financial links and associations to other people, as their credit score can have an influence on yours. Be registered to vote, as if you’re not on the electoral roll, simply registering to vote will improve your credit score. It takes minutes and you can do it online. Pay all your bills by direct debits so you don’t miss any payments.
Prove you can manage your debt if you’ve never borrowed money, as you may have a low credit score or not have any credit history. Applying for a credit card and paying the balance in full every month will gradually improve your score. If you have got lines of credit, bear in mind that if you’ve got too much unsecured credit it can be considered a sign that you’re living beyond your means so try to lower your use of unsecured credit to below 50% of the amount available to you.
Always use a broker as the process can be extremely confusing if you try to do it on your own. The only difference from a standard application is that you’ll need to prove to your advisor why and how the adverse credit occurred, as the lender will want to see that.
The lenders we’ll be approaching are less likely to be familiar names, but they are still governed by the Financial Conduct Authority.
If you feel you’ve got bad credit, make early contact with a broker. Don’t assume you can’t get a remortgage. Let us look at your file early and put a plan in place either to help you better your financial position and repair the credit rating or help you with your mortgage requirements. The initial consultation is at no cost to the client.
Your home may be repossessed if you do not keep up with your mortgage repayments.