Investing in a property and becoming a homeowner is an exciting prospect, but it can be difficult to do without enough capital to buy outright. A buy-to-let mortgage is an option for those who don't have the funds to purchase a property outright, but it's not as easy as getting a standard residential mortgage. Before you dive in, there are certain criteria you must meet in order to qualify for one. Getting a buy-to-let mortgage with bad credit can be difficult, but it's still possible. In most cases, you'll need a specialized lender to guarantee the loan.
The severity of the credit problems and their recent occurrence will determine whether or not you qualify. It's generally cheaper to get a residential mortgage than a buy-to-let mortgage; interest rates tend to be lower, as are product fees, because lenders consider buy-to-let properties to be more risky. It may be more difficult to get a buy-to-rent mortgage if you're buying for the first time, but it's not impossible. A lender would normally expect you to be able to repay the loan on a residential basis. The amount you can borrow depends largely on the rental income you expect to get from the property, although other income may be considered in some circumstances.
As a guide, many lenders specify that your rental income should be 25 to 45% higher than your mortgage payment. The terms of eligibility may also be different. Buy-to-let properties carry greater risks for lenders, so if you don't tell your bank, you could in theory be invalidating your mortgage. Even people with an active Debt Management Plan (DMP) can still qualify; it's all about finding the right lender. It may also be more difficult to obtain a mortgage when you buy your first home to live in, as lenders will evaluate any outstanding debts you have on your buy-to-rent mortgage. A buy-to-rent mortgage is very different from the mortgage you might have for your own home.
To begin with, the amount you can borrow depends largely on the rental income you expect to get from the property. If you are a foreign citizen and are not currently residing in the UK, things tend to be a little more difficult. A series of tax changes have led many homeowners to decide to refinance their portfolios rather than increase them. It's recommended that you save a minimum deposit of 15% for a buy-to-rent mortgage. Most people who are just starting to use buy-to-rent mortgages may not fully understand what to look for or where to start, and the process can take a long time. Money Facts has a buy-to-rent calculator that calculates the expected return on rent so you can see how much return you could get before applying for a buy-to-rent mortgage. The longer it has been since any late payments occurred, the happier the lender will be to accept it and offer you a buy-to-rent mortgage.
One of the most common reasons to remortgage for rent is to buy an additional property and use the capital of the first as a deposit for the second. In conclusion, getting a buy-to-let mortgage isn't as easy as getting a standard residential mortgage. However, with careful research and preparation, it is possible even if you have bad credit or are buying for the first time. Make sure that you read up on all of the eligibility criteria and use tools such as Money Facts' calculator before applying.