Local authority tenants (people who have been renting from a local council or housing association) may find that they are actually eligible to purchase the home that they are renting, via the government Right to Buy Scheme.
Typically, you receive a discounted purchase price (this is often acceptable as a form of deposit) which allows you to do this. In order to be eligible, you will have to have been a public sector tenant for at least three years, with the longer you’ve rented having an impact on the amount of discount you receive.
Every applicant has different circumstances though, and what could be a fairly straightforward process for some, can be a different story altogether for others. You may find that although you are eligible, you have bad credit to your name. This can severely impact your ability to obtain a mortgage.
Luckily, for those who would like to know if you can obtain a Right to Buy mortgage with bad credit, the answer is yes, this is possible. Of course personal circumstances and mortgage lenders discretion is always a factor, but with the help of a mortgage broker, you still could have options.
What defines as bad credit will depend on the mortgage lender that you are dealing with. Some may deem it to be things like missed credit card payments, phone contract payments or loan installments. On the other hand, there are some that will not class these as such and could look past them.
In every situation, however, if you have been through repossession, bankruptcy or had a CCJ (County Court Judgement) tied to your name, you will be classed as having bad credit. In all these situations, poor credit will lead to a decrease on your credit score, with this varying on severity.
The worse the situation you are in, the worse your credit score will likely be. Lower credit scores make it difficult to obtain a mortgage, as whilst there are a variety of specialist and bad credit mortgage lenders out there, some of which we even have on panel, you will be deemed higher risk.
In the eyes of a mortgage lender, there is every chance you will not be able to repay your mortgage payments each month, leading to eventual repossession and a loss of profit to the mortgage lender. Because of this, applicants who are accepted, typically face much higher costs.
The easy answer is, all bad credit can have a negative impact on not just a Right to Buy mortgage, but any mortgage you were to apply for. Bad credit impacts everything from first time buyer mortgages to remortgages and everything in-between.
As touched upon above, bankruptcy can be a big one. Typically speaking, if at least 3-6 years have passed since you were discharged from your directorship, you’ll have a much better chance of finding a specialist mortgage lender who is willing to let you borrow.
Debt Management Plans and Individual Voluntary Arrangements (DMPs and IVAs) can also have an impact on this. This is a fairly stricter circumstance than some of the others. If there has been at least 3 years, you have a much higher chance of success, though if not, you are very limited.
Being subject to repossessions can also make getting a Right to Buy mortgage incredibly difficult. There are some mortgage lenders who are willing to let you borrow in these circumstances if it has been a number of years since, though the vast majority will likely reject your application.
Of course some of the more commonly encountered instances include things like CCJs (County Court Judgements), defaults, arrears, missed or late payments and just generally having a low credit score. As you can imagine, the latter is the least serious of the ones mentioned.
Late payments or missed payment severity levels can vary and the perception in the eyes of a mortgage lender can vary also. Arrears, defaults and CCJs are much more serious, with mortgage lenders wanting to see that at least three years have passed.
In either of the latter cases, a specialist mortgage lender will also make a point to review the exact circumstances surrounding the bad credit, as there could be options for you depending on if you have satisfied payments and are a few years removed from the situation.
Learn more here about getting a mortgage with a CCJ.
With all bad credit mortgage circumstances, the further away you are from your bad credit problems, the better of a chance you will have. Making attempts to repair your financial state as well, goes a long way in the eyes of a mortgage lender.
Things like satisfying CCJs, cleaning up your credit file, these will all paint you in a good light. Of course, this still does not guarantee anything and obtaining a Right to Buy mortgage with bad credit will still likely be a challenging proposition, but it means you could have options.
The best way to see if you have a chance at getting a Right to Buy mortgage with bad credit is to speak with a dedicated mortgage broker. Many mortgage brokers out there, just like ourselves here at UK Moneyman, have specialist mortgage lenders on panel who offer deals for complex cases.
Whilst the process may be difficult and very likely costly (with higher interest rates), you can rest assured that there could be a lifeline for you, with a mortgage broker finding you the absolute best deal they can for you, based on your individual circumstances.
As a typical rule for those applying to buy their local authority home using a Right to Buy mortgage, the amount of discount that will be applied can often be accepted as a deposit on the property by the mortgage lender. This is because you already purchasing at below its market value.
Your circumstances may be different, however, if you are purchasing and taking out a Right to Buy mortgage with bad credit. The reason for this, is that due to your bad credit, you are a higher risk to the mortgage lender.
If your discount equals the equivalent of a smaller deposit and you have bad credit, a mortgage lender may require you to put down some funds of your own to bring that percentage up. In other cases, if that discount is the equivalent of say, 10-20% deposit, they may be more lenient.
It ultimately depends on how long you have lived there, your personal circumstances, such as the bad credit you have and, the mortgage lender in question. With all mortgage cases, the higher deposit you can put down, the better the mortgage deals you can access.
This applies to a Right to Buy mortgage as well, as whether you have bad credit or not, putting down more deposit can open you up to much better mortgage deals, lowering either your monthly payments or interest rates.