I make a lot of posts on adverse mortgages, but generally speaking they are about residential mortgages. I thought it would be a good idea to take a quick overview at the adverse side of Buy to lets.
The basics
Generally speaking most BTLs go up to 75% LTV. That is the same whether you have a perfect credit history or adverse. There are 80% products and at times 85% but for the purposes of this post I will work on the assumption of 75% LTV unless stated otherwise.
Most BTLs are also assessed on the assumption that the rental income passes a particular calculation. That calculation varies from lender to lender. It will look something along the lines of the rent needing to be 130% of the monthly repayments based on an interest rate of 7%. In practice, that means £100,000 mortgage at 7% on interest only is £580. 130% of that is £754, which means in this case for the rent to stack up the rental income would need to be £754 a month or more.
Where that is not the case, there are lenders who can look to use your earned income or income from other properties. But that is a little more in depth so will leave that for another post. If the rent does not stack up, please get in touch and we can discuss.
The adverse
Similar to the residential world, once your adverse hits 3 years old you will start to see more lenders and lower rates.
Defaults – can be accepted providing they are a minimum of 6 months old. It might even be possible to ignore them completely if the value is below a certain amount or it is for a mobile phone or utility bill. I recall once having a client with around 4-5 defaults, one lender ignored all but one of them!
CCJs – similar to above really. Providing they are over 6 months old, we have many adverse lenders who can look at them. If they are under a certain amount it might not even matter if they are under 6 months old.
Arrears – you might begin to notice a little trend here… Generally speaking if they are over that magic 6 months there are lenders who will consider you.
Bankruptcy/IVA – Generally speaking we are looking at 3 years discharged from the bankruptcy. However there are a couple of lenders who will potentially consider you if you are recently discharged. There are also some who can help raise the money to settle the IVA. However, you will notice a drop in the LTVs for this (maybe between 60-70%) and higher interest rates.
DMP – most of the specialist lenders just want to see you have been conducting the DMP satisfactorily. This varies from lender to lender, most fall in at around 6-12 months worth of payments being made. But some will be as little as 1.
Why the trend for 6 months
I think this is primarily down to the fact that it shows a clear gap between whatever the reason was for the adverse and that it is behind you.
Lenders have to be seen to be lending responsibly. Lending to people struggling to make repayments can be hard to justify but not impossible. In the main this is where the 6 months come in as they can evidence the struggles are over and there is a line in the sand.
Summary
I suppose in a nutshell, it is possible to get a BTL mortgage with adverse if:
- You have a 25% deposit ideally but potentially 20%.
- The rent stacks up.
- Your adverse is over 6 months old.
However, where those things are not the case it is still worth a conversation. Things chance and this is a generic post to cover the basics. There are exceptions to be made.