Can I get a Right to Buy Mortgage with bad credit?
The government’s statutory Right to Buy scheme, designed to allow council tenants in England to buy the home they rent at a discounted price, was introduced in 1980, since when around two million council properties in England have been purchased.
A number of changes introduced in 2015 made the Right to Buy scheme a more attractive proposition to many people, even if you have bad credit: it is now available to those who have been council tenants for three years, rather than the previous five, and maximum discounts are now £84,600 (or £112,800 in London) increasing each year in April in line with the consumer price index (CPI).
RIGHT TO BUY MORTGAGES WITH POOR CREDIT
Further to the 2015 changes to the Right to Buy scheme, another major amendment was to extend it to include assured tenants of Housing Association properties. The scheme operates on a voluntary basis and was piloted by five housing associations in 2016, with a substantial number of regional associations joining them during 2017-2018. A total of more than 77,500 tenants used Right to Buy to purchase their homes in the five years up to the end of 2017.
This opportunity to get onto the property ladder, with the prospect of paying money into a mortgage rather than see it disappear in rent, or re-selling later for a profit, is tempting for many. However, with many Housing Association tenants being on lower incomes, how will their chances to get a mortgage be affected if they have a poor credit rating?
Right to Buy Mortgages With a Bad Credit History
A number of lenders have now entered the Right to Buy mortgage market, providing financing for eligible tenants – whether in council housing or housing association properties – to be able to buy their homes. However, if you have suffered bad credit problems in the past, this may have an adverse effect on whether you can obtain a mortgage, and the terms and rates you will be offered if so.
This is why you may need to check the options open to you via specialist mortgage lenders who do not operate on the high street, nor online, but cater to exactly the needs of people in your position. These lenders are only accessible through specialist advisers, such as our team here at Just Mortgage Brokers.
Over the next sections, we’ll cover a few things you should consider if you are wondering about whether you can still buy your council house under the Right To Buy scheme with a history of bad credit.
How can I tell if I have bad credit?
Your ability to get a mortgage is most likely to be affected if you have defaulted on a debt, had a County Court Judgment (CCJ) registered against you, or been declared bankrupt. However, less serious credit problems – such as missed or late payments – can also have a bearing, especially if there were quite a few of them. Remember that “credit” does not just include obvious things like credit cards, loans and overdrafts; it can also cover things that many people do not normally think of as credit arrangements, such as utility bills, gym membership arrangements, and broadband or mobile phone contracts. Payment arrears on any formal credit arrangement will be recorded on your credit record.
The elements that can determine your credit score are your payment history; the amount of debt you currently have; how long your credit history record is, the types of credit you have had previously, and the number of credit searches that have been made against your name.
There are a number of credit reference agencies in the UK that gather information on how people manage their debts and payments. Mortgage lenders and other credit companies check with these agencies to obtain the information they require to assess whether an applicant is creditworthy. You can also apply directly to each of the credit reference agencies to obtain access to your credit records and see for yourself whether they contain any adverse information. The three main credit reference agencies are Experian, Equifax, and Callcredit, who offer credit report services via CreditKarma.
What should I do if my credit record shows bad credit?
If your credit record shows missed payments, defaults or any other signs of bad credit, the first thing to do is ensure that those details are accurate. Credit companies can and do make mistakes, and if any of the information on your credit file is inaccurate or in dispute then you have the right to have it corrected. If possible, you should do this before applying for your mortgage.
If payments were missed due to something out of your control such as, for example, your employer going bust, then get in touch with the credit reference agency and tell them. If they are prepared to add a note to the file explaining what happened, this might be enough to swing a credit decision in your favour.
It can also be helpful to take action to repair your credit rating. Simple steps you can take include making sure you are on the electoral register, closing off old credit facilities – such as unused credit cards – and avoiding making multiple credit applications close together. For more information, take a look at our tips on how to repair your credit rating.
Am I eligible for a Right to Buy Mortgage with bad credit?
Mortgage lenders weigh up applications using a scoring system to assess the risk of you not paying them back, either on time or at all, based on a wide variety of criteria. In terms of your credit history this includes considering both the severity of your past credit problems and how long ago they occurred. Defaults, CCJs and bankruptcies all stay on your record for six years, but generally have less of an impact as time passes – assuming you do not have any more added to your record.
The good news is that there are lenders out there who specialise in providing mortgage lending to applicants with a less-than-perfect credit history. Even if you have been turned down by high street banks or building societies, it may still be possible to secure a bad credit Right to Buy mortgage deal. By dealing with a Right to Buy mortgage broker with experience of securing finance for people with bad credit, you can improve your chances of being able to find a lender offering a deal that meets your individual circumstances.
HOW DOES BAD CREDIT AFFECT A RIGHT TO BUY MORTGAGE?
Having adverse credit events, like CCJs, defaults, an IVA or just a few missed card payments, can make it more difficult to obtain a Right To Buy or a standard mortgage, but much will depend on your individual circumstances. How a lender will react to the bad credit event on your record will be influenced by the amount of money involved and the seriousness of the bad credit issue.
Most high street lenders will shy away from applicants with bad credit events on their records (up to the last six years), and you will likely need to talk to a specialist lender. We should take each type of event and consider what might be the implications.
Repossessions – Most lenders will decline you if you’ve ever had a repossession. A handful of specialist lenders may accept if it occurred within the last year, but it will be tough. A few will consider your application if it’s within three years of a repossession, more within the last 6 years, while many are happy to accept if the repossession occurred over six years ago.
Bankruptcy – A select few specialist lenders will consider applications the day after a bankruptcy was discharged, while a few more will accept you after 12 months, and most will be willing to view your application if it’s been three to six years since the discharge. Mainstream lenders are likely to decline you altogether.
DMPs and IVAs – If you are currently in a debt management plan or an individual voluntary arrangement, then only a few specialist lenders will accept you for a Right To Buy mortgage. But if the plan was settled three or more years ago, then most will be willing to lend to you.
Arrears – Most lenders will accept arrears more than three years ago, and there are quite a few who will be fine with some more recent instances. A specialist lender will look at all the factors around your situation. If you are currently in arrears on your mortgage, then it’s unlikely that a lender will accept you for a new one.
Defaults and CCJs – If the issue occurred within the last 12 months, then there may be difficulties, but there are lenders on the market who will consider applicants with defaults within the last few weeks, and most will be happy if the default or CCJ was registered three or more years ago. Some lenders will be less accepting of CCJs than others.
Late payments – If you’re currently behind on other payments, then it’s unfortunately unlikely that you will be accepted for a mortgage. However, if the fewer and more far between they are, and the further into the past, the more likely a lender is to forgive them, especially if your financial records are otherwise exemplary.
If you simply have a low credit rating, perhaps because you don’t have much, or any, history of borrowing, then it’s unlikely to have much of an effect, and lenders will look closer at your current financial circumstances – your income, outgoings, level of current debt, etc – to make an affordability assessment and come to a decision.
As ever, the more time that has passed since the bad credit issues occurred, the less weight they will carry, especially if you’ve taken steps to repair your credit record and keep a clean slate since. You might also find that a lender’s criteria for those with bad credit might change over time – get in touch with one of our advisors to find out your current options.
Depending on the type of issue, your options for which lender will consider your application will be more narrow than usual, and the criteria more stringent, but it will not be impossible to get a Right To Buy mortgage with a poor credit history.
At Just Mortgage Brokers, our team are experts in bad credit mortgages, and know exactly how to help people looking to exercise their rights under Right To Buy find exactly the right mortgage for their circumstances, whatever their credit history.
DO I NEED A DEPOSIT TO BUY MY COUNCIL HOUSE IF I HAVE BAD CREDIT?
Those with bad credit events on their records, or a low credit score for whatever reason, are often faced with more challenging conditions when they apply for a mortgage. One of these conditions might be the need to provide a larger than average deposit, although how essential this will be might depend on what other mortgage terms you are willing to accept – for instance, a higher interest rate.
A larger deposit that acts as security on the home loan, and shows that you are committed to the mortgage, will help lenders to see your case more favourably, and should make it easier for you to find a mortgage to meet your needs as well as help to get your application accepted.
If you are only able to provide the standard deposit amount of 5%-10%, and you have adverse credit issues on your credit record, then a lender is likely to impose a higher interest rate to compensate for the higher level of risk. This said, any bad credit events on your record will lessen in impact over time, especially if you have had a clean record since and taken steps to improve your credit rating, and will eventually fall off your record after six years. With most mortgage lenders, they will accept the right to buy discount as you deposit, thus avoiding the need for further funds being required from the borrower.
Generally speaking, the larger the deposit you can provide, whether you have a bad credit rating or not, the better the terms will be of your loan. So, while a larger deposit might not always be necessary, it might well be useful in order to get a better, more affordable deal.
If you have any bad credit entries on your credit history, and want to find a Right to Buy mortgage, always talk to a specialist mortgage adviser. At Just Mortgage Brokers, we’ll be able to make a quick assessment of your situation and advise you of your most suitable options going forward.
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