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If you want to become a landlord, whether you’re looking to invest in buy-to-let properties, or you have a property ready to rent out, you might be wondering how your credit score comes into play.

If you have a bad credit score, there is no reason to give up hope of becoming a landlord. In fact, you might be pleased to know that the number of mortgage lenders offering buy-to-let mortgages for borrowers with bad credit is on the rise. 

Therefore, no matter what you have or haven’t heard, if you live in the UK, having a bad credit score isn’t the be-all-and-end-all and it won’t stop you from becoming a landlord. In this article, we are going to share how you can become a landlord if you have bad credit. 

 

Assess and Improve Your Credit Score 

Understanding your credit score and what can be done to improve it is a vital first step in becoming a landlord. If you have bad credit, it’s important you know so that you can take the appropriate steps to make improvements. 

The great thing is, you can check your credit score for free online. “They’ll show your past loans, credit cards, overdrafts and even some utility bills […] You can also make sure they’re up-to-date and challenge any potential mistakes,” says Pete Mugleston, Managing Director at Online Mortgage Advisor

If you want to succeed as a landlord, it’s important to be proactive. Thankfully, there are numerous practical changes you can make today that will help to improve your credit score. These include: 

  • Signing up to the electoral roll 
  • Paying your bills on time, every time 
  • Stay at a fixed address for as long as possible (lenders prefer people who don’t move around too much) 
  • Aim to pay off at least the minimum balance on your credit card at the end of each month 
  • Avoid taking out cash from your credit card 
  • If you take out any loans, ensure you can make the repayments.

 

Find the Right Lender 

In the UK, there are a myriad of lenders all offering different deals and all requiring you to jump through different hoops to get approved. There are many different lenders who will approve applicants with bad credit scores. These include lenders ranging from challenger banks and specialist companies to high street mortgage providers and brokers. 

The most important thing you can do is prioritise finding a lender who specialises in bad credit ratings. These kinds of experts will be well-equipped to support you in finding the right buy-to-let mortgage for your needs. 

 

Speak to a Broker Instead of Your Bank 

This might seem like counterintuitive advice, especially when you are trying to secure a buy-to-let mortgage and secure your position as a landlord. However, if you have bad credit it’s best to avoid speaking with your bank. This is because most banks will carry out automated credit score checks and will accept or reject your application based solely on the result. 

For the best outcome, you want to speak with a specialist broker who can provide invaluable support and advice catered to your individual circumstances. Independent mortgage brokers are experienced at securing buy-to-let mortgages for landlords with difficult credit histories. 

They have up-to-date industry knowledge and can provide you with all the information you need to submit an application with the highest chances of being accepted. Speaking to a broker instead of your bank will ensure you receive specialist support that is right for your needs. 

 

Save a Bigger Deposit 

As we have already mentioned, having a bad credit score doesn’t mean you can’t become a landlord. However, having said that, banks and other lenders typically require a higher deposit for those looking to invest in buy-to-let properties. In the UK, lenders typically request 25% of the property’s value – and that’s for those who have a good credit score. So, if you have a bad credit score, it’s typically expected that you will need to save even more. 

One of the ways you can improve your chances is to save a bigger deposit. For some, that may mean putting their landlord plans on hold for another year while they bulk up their finances, while for others that may mean delaying even longer. Whatever it means for you practically, taking the time to save a bigger deposit could help you significantly when you apply to become a landlord further down the line. 

Some of the best ways to save for a bigger deposit include: 

  • Setting aside a monthly amount in a savings or ISA account 
  • Utilising the roundup feature on your bank account 
  • Creating a monthly budget 
  • Cutting down on unnecessary costs 
  • Asking for loans from friends and family 

Consider Finding a Guarantor 

If you have bad credit, it can be helpful to secure a guarantor. Having a guarantor can be a great way to get on the property ladder, even if you don’t meet the lender’s requirements. 

With a guarantor, lender risk is reduced as your guarantor acts as your backup. Guarantors cover your mortgage if you cannot keep up with repayments. Therefore, guarantors are an invaluable asset if you are struggling with bad credit. 

Guarantor mortgages work by securing a legal charge against your guarantor’s property or savings. This means that, should your mortgage be unpaid, the lender can claim these repayments by using your guarantor’s property or savings as collateral. As a result, most people consider finding a guarantor from among their close family and friends as it is a huge commitment for a person to undertake. 

💡 Rentround tip: Parents and grandparents tend to be popular choices as they often have healthy credit scores, secure finances, and are often mortgage-free, making them a safe choice. 

Have a Debt Management Plan (DMP) 

You might be surprised to learn that if you have debts you need to pay off, you can still secure a buy-to-let mortgage. The best way to do this is to get a debt management plan. These plans are offered by debt management providers and are one of the best – and simplest – ways to stick to making regular repayments on any debts you owe. 

Lenders will look at whether or not you have a debt management plan, how much you owe, and how frequently you are making your repayments. This information will provide valuable insight into your reliability and will be carefully considered alongside your application. 

💡 Rentround note: Only specialist mortgage lenders will take the time to consider a buy-to-let mortgage application with a debt management plan in place. So, again, your chances of success boil down to working with the right person.

Have a Steady Income Stream 

Where your money comes from plays an important role in your mortgage application being accepted or denied. Lenders want to see that you have a steady stream of income as this provides assurance that you will be able to make the required payments – and do so on time! 

As such, it is generally accepted that applicants in a salaried position (i.e., with a PAYE income) tend to be favoured by lenders. This is because salaried positions tend to be more secure than those that are not. However, being on a PAYE salary is not essential. 

If you are self-employed and hoping to secure a buy-to-let mortgage, there are plenty of options available. As a self-employed individual, you are still eligible, it can just be more difficult to secure a loan as you generally need to show three years’ worth of income. So, it is worth considering how you can achieve a steady income stream prior to starting the application process as it could save you a lot of trouble and heartache in the long run. 

Request Financial Support from Family 

We know money can be a touchy subject. However, if you have bad credit and you want to become a landlord, a great way to do so with very little difficulty is to request financial support from your family. If you have limited savings, a small deposit, and a bad credit rating it can be difficult to secure the buy-to-let mortgage you want. 

That’s why it can be so helpful to ask for financial support from family members. Sometimes, a little cash injection can go a long way towards boosting your deposit, helping pay off your debts, and securing the property you’ve always dreamed of. 

Remember to be Patient 

More often than not, applying for a buy-to-let mortgage is a patience game. It is easy to rush into the process when you’re not really ready. That’s why our advice is to be patient. If you are following the steps above and being proactive about improving your credit score, things will improve with time. 

As long as you are working hard to improve your financial situation, save a deposit, and boost your credit score, the passing of time will only make you more appealing to lenders. 

Final Words 

Becoming a landlord is a big responsibility. We could write an entirely new guide on what you can expect – the good, the bad, and the ugly – but for now, we think you’ve got enough on your plate dealing with all those buy-to-let mortgage applications.

So, for now, we hope the advice in this article will help you achieve your goal of becoming a landlord. Remember, the two P’s – it’s important to be proactive and patient. You will get there in the end. Securing a mortgage if you have bad credit is possible. 

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