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Right to Buy Mortgage with Bad Credit

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Can I get a Right-to-Buy Mortgage with Bad Credit?

Back in 1980, the government introduced a statutory Right To Buy scheme, allowing council tenants in England to buy the home they rent at a discounted rate. This enabled more people to get onto the housing ladder and invest in property rather than lose out in rent. Since that time, (now ex-) tenants have purchased around two million council homes.

In 2015, the government introduced changes to the Right To Buy regulations, making it even easier to buy your council home, even if you have a bad credit history. People can make use of the scheme if they have lived in their home for three years, instead of five, and the maximum discounts were increased to £77,900 (or £103,900 in London), increasing annually in April in line with the consumer price index (CPI).

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.

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”.

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