Right to Buy Mortgage with Bad Credit
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Right to Buy Mortgages
In addition to the changes introduced in 2015, the government further extended the Right To Buy scheme to encompass assured tenants of housing association properties. The scheme was piloted in 2016 by five housing associations, operating on a voluntary basis, with additional regional associations also going on to pilot schemes during 2016-17, with an estimated 3,000 tenants opting to buy their own homes.
Many lenders have entered the market in Right To Buy mortgages, providing finance to eligible tenants of council housing and housing association properties to buy their homes. However, your ability to secure a mortgage – and then at an affordable rate – may be affected by any bad credit issues in the past. Over the next few sections, we’ll take a look at what you might need to think about if applying for a Right To Buy mortgage with a bad credit history.
Information on Right-to-Buy Mortgages with Bad Credit
How can I tell if I have Bad Credit?
You are most likely to have problems getting a mortgage if you have suffered a serious adverse credit event like a County Court Judgement (CCJ), repossession or bankruptcy. But lesser bad credit issues like missed card payments or loan instalments can also be detrimental to your credit report. Bear in mind that the term ‘credit’ can cover all kinds of domestic arrangements that you might not consider in the same bracket as cards and loans, but any missed payments will still count against you on your credit report, like: gym memberships, mobile phone contracts, utility bills or broadband contracts.
There are various factors that combine to determine your credit score: your level of current debt, your payment history, previous types of credit you have used, the length of your credit history, and the amount of credit searches companies have made against your name.
Mortgage lenders and other credit companies routinely use credit reference agencies to check information about an applicant’s credit history and current credit arrangements, so they can determine how likely the applicant is to pay back a loan, and how affordable the loan will be for them.
You can also apply to these agencies yourself to view your own credit records and see if they contain any data that would count against you when applying for a Right To Buy mortgage. There are a number of these agencies in the UK – the main ones being Experian, Equifax and TransUnion – all of whom gather and report information in slightly different ways, so it is worth going to more than one source to see what they are holding. Log on to their websites or give them a call, and they’ll take you through the process.
What should I do if my credit records show Bad Credit?
The first thing you should do is verify the facts and make sure any adverse entries are correct. Any instances of default, missed payments or other signs of bad credit management should be checked against your own statements, and if you find anything that is not as it should be, you must contact the appropriate company right away to get it amended. Credit companies can and do make mistakes, and will correct inaccurate entries within a few weeks of notification.
You might also be able to include mitigating factors behind any bad credit events in your report that were beyond your control – for example if you were a victim of fraud or you lost your income after your employer went bust. Tell the credit agencies about it and they might be prepared to add a note explaining circumstances, which might help to swing a mortgage decision in your favour.
You can also take several proactive steps to try to repair or rebuild your credit rating. These include making sure you are on the electoral roll, closing down any unused credit facilities you have left open, and avoiding any unnecessary credit applications to reduce the number of credit checks against your name. For a complete run-down of what you can do, lake a look at our tips on how to repair your credit rating on our Low Credit Score page.
Obviously, it’ll be better for you to get this all done before you actually apply for a mortgage.
Am I eligible for a Right to Buy Mortgage with Bad Credit?
As well as noting the credit scores on reports from the three main credit reference agencies, mortgage lenders will use their own scoring system to assess whether you pose a high risk of non-payment. This is based on a variety of criteria, including the type and severity of any previous adverse credit events, how long ago they happened, the amount of money involved, and more. Bankruptcies, CCJs and default notices all remain on your credit history for six years but carry less weight the older they are – assuming more issues don’t get added in the meantime.
Fortunately, with mainstream banks being more risk-averse, a number of lenders have filled the gap in the market for servicing applicants with a blemished credit history. These specialist lenders will offer Right To Buy mortgage products to suit people with bad credit, even if they have been turned down by the high street providers.
At The Mortgage Centres, our brokers are experts in bad credit mortgages, with access to a network of lenders and exclusive deals you won’t find on the high street. Our experienced advisers can help people looking to exercise their rights under Right To Buy find exactly the right mortgage to suit their circumstances, whatever their credit history.
What Types of Bad Credit will Affect My Right to Buy Mortgage Application?
In truth, any kind of bad credit will have some sort of bearing on your Right to Buy mortgage application, and a lender’s approach to this will vary widely from one to the other. Mainstream or high street lenders tend to take a very negative approach to even a slight black mark, and you may find your application declined if you have more than just one or two of the mildest of items on your record from the last six years.
On the other hand, the specialist mortgage lenders in the market apply far more flexible criteria, and are often willing to consider people who have experienced even some of the more severe adverse credit events in their recent past. Items such as default notices, CCJs, IVAs or even only a few missed card payments on your records can all negatively impact your Right to Buy mortgage application, but a lot will depend on your individual circumstances. A lender’s decision will be influenced by the severity of the adverse credit issue, how much money was involved, how long ago it happened, and how your patterns of borrowing and repayments have improved in the meantime.
The various types of bad credit events will affect your application for a Right to Buy mortgage in slightly different ways. Let’s go through them one by one, starting with the least serious.
- A low credit rating – this could be caused by simply not having much of a borrowing history to speak of, or not having made use of any kind of credit at all in the past. Ironically, if you have responsibly saved up for major purchases or bought larger items when money was available, then you will still be seen as something of a credit risk by lenders, as they have no information to go on to make a judgement. However, this is easily overcome by providing a thorough overview of your income, outgoings, savings and current commitments.
- Late or missed payments – being behind on current borrowing repayments or having missed some payments on a store card or credit card can cause a problem with many lenders. They will view this as a possible bad habit, or a sign of a less-than-serious approach to borrowing and money management, that will flag you up as a high lending risk. This said, a lot will depend on the exact details and the amounts of money involved – the fewer, lower and more far between they are, the more likely a lender is to forgive them, particularly if you have an otherwise clean record.
- Arrears – having let payments slide on your loans will make lenders think twice, but it will depend on the exact circumstances. If you are in arrears on your current mortgage, then it’s unlikely that a lender will be willing to grant you a new one. If your loan arrears occurred three or more years ago, then most lenders will be amenable to your application, and there are some who will accept more recent cases, depending on the amounts involved and what they were for. A specialist mortgage lender will examine all the circumstances around your issue in order to make a judgement.
- Defaults and CCJs – this can be quite serious, again depending on the size and nature of the issue, but there are lenders in the specialist market who are willing to accept people with defaults or County Court Judgments on their records. Generally, you will face an uphill struggle if the event occurred within the last 12 months, but there are some lenders who have been known to accept defaults in the last few weeks if other surrounding factors are in your favour, such as having a good-sized deposit. CCJs can cause a bigger problem to some lenders than others, but most will be happy if it’s been three or more years since the event occurred.
- DMPs and IVAs – these plans at least show that you were willing to accept responsibility and enter into an arrangement in order to settle your debts, and if you settled your Debt Management Plan or Individual Voluntary Arrangement three or more years ago, then most lenders will be willing to extend a mortgage to you. However, if you are currently subject to a DMP or IVA, or have been released from one for less than a year, then unfortunately only a few specialist lenders will consider your application.
- Repossessions – if you have ever had a property repossessed, then unfortunately most lenders will not want to consider your application for a Right to Buy mortgage. However, there are a handful of specialist lenders who may be willing to help you, but it will be tough, especially if the repossession occurred within the last twelve months. If it’s been three years or more since it happened, then your options will improve, and even more so after five or six years. Once it has slipped off your records, most will be happy to accept your application.
- Bankruptcy – if you have a bankruptcy on your record, or even reply to the affirmative if asked if it has ever happened, then a mainstream lender is likely to decline you a Right to Buy mortgage straight away. Specialist lenders will take a more flexible view, with a handful even willing to lend to you the day after a bankruptcy has been discharged, while a few more will be fine to look at your application after twelve months. If three to six years have elapsed since your discharge, then most specialist lenders will be happy to lend to you.
Your options for which lenders will work with you will vary according to the type of issues you have, and while their number will be less than usual and their criteria more strict, it is certainly still possible for a client with bad credit to successfully obtain a Right to Buy mortgage.
It’s important to remember the impact that all types of bad credit will have on your application for a Buy to Let mortgage will lessen as time goes by, especially if you have maintained a healthy record of credit, borrowing and repayments since. It could also be the case that attitudes amongst lenders might shift in future and you may find that criteria for borrowers with bad credit also change with time. It’s worth talking to a member of our expert team to find out how the land lies currently in relation to your issue.
Our team at The Mortgage Centres has a wealth of experience in dealing with Right to Buy mortgages, including many cases with applicants with adverse credit on their financial records. We have an in-depth knowledge of the ever-changing and highly competitive mortgage market, as well as a complete understanding of all types of bad credit, and will know exactly which lenders will be most suited to your current circumstances. Get in touch to find out your options.
Right to Buy with Bad Credit FAQs
- Can I use my Right to Buy discount as a deposit?
- Can I buy my Right to Buy property with adverse credit?
- My Right to Buy flat is in a high-rise building - can I get a mortgage?
- What is the maximum age lenders will accept on a Right to Buy application?
- When I buy my Right to Buy property, can I borrow more for home improvements?
- Can I rent out my Right to Buy property once I have obtained a mortgage?
It is possible, but will depend on the lender you talk to. Most will be fine to treat your Right to Buy discount as a deposit, but this is not the same for all lenders, and some are likely to still ask for a cash deposit to secure the property purchase. Your choice of lender for a Right to Buy mortgage might be steered by their policies in this respect. If you are able to put down a deposit as well as use your Right to Buy discount, whether you choose to or because the lender wants it that way, this will help reduce your monthly mortgage payments in the long term, and will also give you more choice in the mortgage deals you have access to.
If you have adverse credit events on your credit records, then it does not spell the end of your house-buying ambitions, but it will inevitably make a difference. It is still possible to get a mortgage and buy your property through Right to Buy, but you may not qualify if you have specific legal debt problems, or a more severe adverse credit event like an outstanding possession order. Other forms of adverse credit will not preclude you getting a Right to Buy mortgage, but you are likely to find it more difficult, and with less options available, with a poor credit score. However, there are specialist lenders who are set up to help people with poor credit histories, and we can make sure you find the right one.
The Right to Buy scheme applies to all kinds of properties, both flats and houses of all descriptions. However, much is down to the individual lenders, as they may have their own policies or restrictions over lending against properties in high-rise buildings. You should make sure any lenders you speak to are aware of the kind of property you are looking to buy or ask them up front if they avoid high-rise flats.
There is no age limit in the Right to Buy scheme, but most lenders will have an upper age limit for who they are willing to lend mortgages to, in order to ensure that the borrower will be able to pay back the amount owed, especially in retirement.
This can be alleviated somewhat by rules that allow you to You can buy a Right to Buy property jointly with a younger spouse or civil partner, or anyone who shares your tenancy, or up to three family members who have lived with you for at least the last twelve months. Some lenders may be more flexible with their maximum age limits where you make a joint Right to Buy mortgage application with a younger family member.
It might be possible to borrow extra money against the property in order to carry out home improvements, depending on the value of the property, the level of Right to Buy discount and the maximum loan-to-value (LTV) ratio the lender is willing to go to. Bear in mind that for leasehold properties, you may need permission from the freeholder (usually your current landlord) before you make any changes to the property.
If you buy your property through Right to Buy, this does not stop you from renting it out afterwards, but it might affect the type of mortgage and the terms you will be able to get from the lender, as they still have a say. If you fully intend to rent your property after you buy it, then you will need to get a Buy to Let mortgage, but many lenders will not permit these on a Right to Buy purchase.
Letting consent policies vary considerably from lender to lender – some can be quite flexible if the letting is only for a limited period (perhaps up to two or three years), while others will only give consent to let in very specific circumstances (perhaps if you are planning to be away working or serving abroad for a set time). Lenders may charge extra fees for either applying for consent to let, or changing from a residential to a Buy to Let mortgage. If you don’t yet know if you want to let out the property immediately or on a long-term basis, but may wish to in the future, then you should apply for a standard residential mortgage with a view to requesting the lender’s approval to rent the property when the time comes. This is usually referred to as “content to let” or “consent to lease”.