What Is a Buy-to-Let Mortgage and How Does It Work?

A buy-to-let mortgage is for those who want to invest in property to rent out. It’s different from a standard mortgage, which is for a home you plan to live in. 

The biggest difference? For a buy-to-let, lenders look at potential rental income, not just your salary. This could be good news if you’re aiming to invest in property but have bad credit.

Can You Get a Mortgage with Bad Credit in the UK?

Yes, you can get a mortgage with bad credit in the UK, but it’s not always straightforward. 

Credit scores play a big part in mortgage decisions. They tell lenders how you’ve managed loans and debts in the past. 

With bad credit, most lenders see you as a higher risk–they worry you might not be able to keep up with the payments. 

That’s why if you’re in this situation, expect that you may find stricter borrowing terms, higher rates, and more scrutiny of your application.

Once you applied, your lender will assess three factors about your credit:

  • Type of credit issue
  • Severity and date of the issue 
  • Reason for poor credit

Beyond this, they will consider your income, outgoing, age, employment, and property type. With buy-to-let mortgages, your lender will also assess if your rental income can cover at least 125% to 145% of the mortgage payments.

Each lender has different rules on what counts as ‘bad credit’. You can check your credit report for free in the following credit agencies: Experian, Equifax, and TransUnion.

In short, while bad credit can limit your options, it doesn’t rule out getting a buy-to-let mortgage. You might need to look harder and possibly pay more, but many have succeeded before you.

How Does Bad Credit Affect Buy-to-Let Mortgages?

Here’s how each type of credit issue affects your chance for a buy-to-let mortgage:

Type of Credit IssueSeverityImpact on a Buy-To-Let Mortgage
No Credit HistoryLowMay face challenges due to a lack of borrowing history, but not insurmountable.
Late and Missed PaymentsLow to ModerateMight lead to slightly stricter terms, but many lenders still consider them.
Mortgage ArrearsModerateCan limit options and lead to more stringent terms, especially recent arrears.
Debt Management Plans (DMPs)ModerateWith fewer lending options available, terms may be more restrictive.
DefaultsHighSignificantly limits lender options, expect higher interest rates.
County Court Judgements (CCJs)HighSeverely restricts lending options, stringent terms likely.
Individual Voluntary Arrangements (IVA)HighVery limited lending options may need specialist lenders.
BankruptcyHighFew lenders consider terms will be strict, significant deposit is required.
RepossessionHighMost severe impact, very few lenders willing to consider, strictest terms.

Working with a specialist mortgage broker can help you find lenders open to accepting your application despite your bad credit. This improves your chances of securing the right mortgage deal and entering the property investment market.

What Interest Rates Should I Expect?

For a buy-to-let mortgage, the interest rates are generally higher than those for residential mortgages. 

If you have bad credit, expect these rates to be even higher. Lenders view bad credit as an increased risk and raise rates to compensate. 

It’s wise to shop around or consult a broker to find the best possible rate. 

Keep in mind, even a slight difference in the interest rate can significantly affect your monthly payments and the total cost over time.

How Much Deposit Do I Need?

Buy-to-let mortgage lenders usually offer at least 75% loan-to-value (LTV)–the amount you borrow compared to the property value you’re buying.

This means you need to cover at least 25% of the property price. But, if you have bad credit, lenders might ask around 30% or more.

This is because they see you as a higher risk. A larger deposit helps reduce that risk from their perspective. 

So, with a shaky credit history, be prepared to put down more upfront to secure your mortgage.

Are There No Credit Check With Buy-To-Let Mortgages?

No credit check buy-to-let mortgages are pretty rare. Most of the time, lenders will want to look at your credit history, even if they say they don’t focus on credit scores. 

Some lenders might be more flexible and not weigh your credit score as heavily, but they’ll still check your financial past. 

Going for these less usual options might come with higher costs and risks, so it’s good to be careful.

How to Get a Buy-to-Let Mortgage with Bad Credit

The application process for a buy-to-let mortgage is the same, but with bad credit, your best bet is to work with a mortgage broker. Here’s how they can assist:

  • They’ll review your credit report with you, pointing out areas that need work.
  • Brokers understand what lenders are looking for and can advise you on how to improve your appeal.
  • They’ll calculate your rental yield to show the potential income from the property, making your application stronger.
  • Brokers have access to deals that you might not find on your own, especially those suited for people with bad credit.
  • They can negotiate with lenders on your behalf, often securing better terms or rates.
  • A broker can save you time by handling most of the paperwork and liaising with lenders.
  • They provide personalised advice, tailoring their services to your specific financial situation.

If bad credit has been holding you back, remember, it doesn’t have to derail your investment dreams. Many have found success before you, and with the right approach, you can too.

Who Offers Buy-To-Let Mortgage With Bad Credit?

Several lenders offer buy-to-let mortgages despite bad credit. Here are some:

  • Foundation Home Loans
  • Hampshire Trust Bank
  • Interbay
  • Kensington
  • Kent Reliance BS
  • Keystone
  • Landbay
  • Lend Invest
  • Lend Co
  • MFS
  • Pepper Money
  • Precise Mortgages
  • Quantum Mortgages
  • Shawbrook Bank
  • The Mortgage Lender

Remember, each lender has different criteria, and what works for one person might not work for another. Your specific credit issues, such as how recent and severe they are, will influence your options. 

Can You Remortgage A Buy-To-Let Even With Bad Credit?

Yes, you can remortgage a buy-to-let property even with bad credit, but it will be more challenging than with good credit.

With bad credit your options narrow to specialist lenders who understand and accept a higher risk profile. 

This translates to potentially higher interest rates and more intense scrutiny of your application.  

The decision to remortgage should also consider your goals. 

Are you looking to release equity from the property, or simply secure a lower interest rate on your current mortgage? 

The amount of equity you have in the property will be a major factor for lenders, especially if you want to release equity.

If your primary goal is a lower interest rate, you might find remortgaging with your current lender, also known as a product transfer, to be a smoother option even with bad credit. 

Since they already have a relationship with you and know your property, they might be more flexible. 

However, it’s still wise to compare rates from other lenders to ensure you’re getting the best deal possible.

To increase your chances of success, try to improve your credit score beforehand. Even a small bump can help. 

The Bottom Line

A buy-to-let mortgage is possible even if you have bad credit. But, your options might be slim, and you might face higher rates and stricter terms. 

So before you dive in, make sure to get answers to these three questions:

  • How much do I need to get a buy-to-let mortgage with bad credit?
  • Can I afford the overall cost, monthly payments and taxes, even with potential voids? 
  • Have I explored all options for improving my credit before applying?

A mortgage broker can help you figure out the answers to these questions. Apart from that, they can guide you to lenders more likely to accept your application and potentially secure more favourable terms.

Ready to get started? Reach out to us. We’ll link you with a good mortgage broker specialising in buy-to-let and bad credit mortgages.