Let’s be honest – maintaining a good credit score at all times might not be possible for many people.
This is especially true if you are going through a period of financial difficulty.
These times could make it a bit difficult for you to buy a new property now or in the future, such as a new council home.
Well, lucky for you that certain lenders who offer mortgages alongside the right-to-buy scheme do allow for certain levels of adverse credit within their criteria.
So, now you might wonder – how does it all work? That is just what we have discussed in this guide for Right to Buy mortgages with bad credit.
Table of Contents
What Is The Right-To-Buy Scheme?
The UK government introduced the Right-To-Buy scheme way back in the 80s. This statutory scheme was implemented so that council tenants in the country could buy homes at a discounted rate.
In other words, the scheme allowed more people to enter the housing market and invest in property easily.
It has been relatively successful in this regard, for it has helped council tenants buy a lot of properties since its introduction.
The government introduced some changes to this scheme in 2015, which made it even easier for tenants to buy property.
That said, you will need to meet certain conditions to be eligible for this scheme. These conditions have been mentioned below:
- The property will be your main or only home
- Your tenancy is secure
- The property is self-contained
- You have had a public sector landlord for at least three years.
A self-contained property is one that is not shared and contains all the features and amenities that are necessary for living in it. These include kitchens, bathrooms, bedrooms, living rooms, and so on.
Likewise, in the case of the last condition, you do not need to have a landlord for three years in a row. Although, you do need to be under a public-sector landlord to be eligible for at least 3 years in its entirety.
As you can see from the above discussion, the condition of credit score has not been mentioned anywhere. This means that you can apply for a right to buy mortgage, even if you have a bad credit score.
There are certain limitations to this aspect, though. as we have highlighted in the next section. A lot of this comes down to the lenders criteria in which you are applying to.
Getting Right To Buy Mortgages With Bad Credit
Once you go looking, you will find that a number of reputed lenders have started to provide right-to-buy mortgages to eligible tenants.
However, most of these lenders will have their own set of rules and guidelines in addition to the eligibility criteria mentioned above. Thus, we would strongly recommend that you check out these aspects before applying for a mortgage.
In this regard, the credit score is one of the first things that lenders might check. You have to remember that these lenders will naturally look to minimise financial risks in any way.
That’s why checking the credit score becomes essential, for it indicates the reliability of a borrower to repay their mortgage payments. But depending what is on your credit record, you may be able to get a mortgage successfully.
On the other hand, if the bad credit involves a lot of what is termed ‘adverse credit’ such as CCJs, Defaults and late payments and also importantly if it is recent, then you might find it difficult to get your mortgage approval.
Also, if your credit score has remained poor for several years, you might face similar difficulties while applying for a right to buy mortgage.
With that in mind, here are some factors that can affect your credit score and, ultimately, your mortgage approval.
1. Repossessions
Most mainstream lenders will refuse to approve your mortgage if you have had a repossession.
Only some specialist lenders would be willing to approve your mortgage in such a situation, and that too if it occurred a long time ago.
If the repossession occurred less than a year ago, then getting an approval might be a bit tough realistically.
2. Bankruptcy
In case you have filed for bankruptcy in the recent past, most lenders will decline your mortgage.
However, there are some specialised lenders who would be willing to approve it, provided your bankruptcy has been discharged.
3. Arrears And Late Payments
Lenders will decline the mortgage for those who have several pending payments or arrears.
But if the arrears are very old or if you have cleared all the late payments, you might be able to secure the mortgage successfully.
4. Defaults And CCJs
When there have been issues of defaults or county court judgements (CCJs) in the recent past, you might not be able to secure a right-to-buy mortgage.
That said, if these are old enough, or have been resolved, then the lender theoretically should have no problems approving the mortgage, especially if it is off your credit record after the 6 year timeframe.
5. DMPs And IVAs
A DMP (debt management plan) or an IVA (individual voluntary agreement) can reduce your credit scores drastically. So, if you are currently under any of these programs, your mortgage will likely be declined.
What Is The Discount That You Get On A Right To Buy Mortgage?
The amount of discount available through a right-to-buy mortgage is fixed for every applicant based on their circumstances.
The final discount amount that you can get depends on the following factors in most circumstances:
- Duration of your tenancy
- Value of your home
There are two types of properties that are eligible for such a mortgage – flats and houses.
You have to keep in mind that if the landlord has spent money on renovating the property, the discount amount may be lower to factor in the money spent on renovation..
How To Apply For A Right To Buy Mortgages With Bad Credit Record?
You’ll be relieved to know that the entire process of applying for a Right-to-buy mortgage is the same for everyone, regardless of credit score.
You will need to fill out the right-to-buy application form, and send the completed form to your landlord.
At that point, your landlord has to reply back to your application with a “yes” or “no”. If they respond with a no, they have to provide a valid reason for the same.
The landlord will have to respond within four weeks (or eight weeks if you have been a tenant for less than three years).
If they agree to sell the property, they will send you a price offer that you’ll need to pay after they have valued the property and assessed the eligibility of your tenancy.
We strongly advise you to consult with a mortgage broker before initiating the process to avoid any issues down the line with attaining the mortgage to purchase the property.
And if you are worried about your credit scores, this qualified mortgage advisor should be able to support you accordingly.
Frequently Asked Questions
Q1. Can you get a higher discount on the right-to-buy mortgage?
If you have been a tenant for more than five years, then you can get a discount rate higher each year until you get to a maximum percentage.
Q2. Is there an age limit on a right-to-buy mortgage?
Typically there is no maximum age limit on a right-to-buy mortgage. However, some lenders may impose an upper age limit to minimise risks and ensure full repayment of the mortgage amount. This age limit can vary depending on the lender, total mortgage amount and credit record.
Q3. Can you borrow extra money for home improvements?
Yes, it may be possible to borrow more money in a right-to-buy mortgage to improve the property.
But the amount you can borrow depends on the property’s value, the loan-to-value ratio and the right-to-buy discount amount.
Lenders criteria can vary on this with some lenders not permitting it at all. .
Conclusion
If you have bad credit, you can use the information mentioned in this guide to apply for a right-to-buy mortgage.
It is always a good idea to consult with a qualified mortgage advisor before proceeding. You can tell them about your credit history and they will advise you on the best possible course of action. They can also refer you to specialised lenders that can approve your mortgage request.
Of course, you will need to do a bit of research yourself as well. After all, if you are fully informed, then the process will become a lot easier.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
I am CeMAP (Certificate in Mortgage Advice and Practice) qualified mortgage adviser with a strong background in Finance. I specialise in providing expert advice on a range of mortgage products, including first-time buyers, remortgages, buy-to-let mortgages and bad credit mortgages.
I am CeMAP & CERER qualified mortgage adviser and have helped a number of clients realise their dreams when they thought it would not be possible. I’m skilled at getting mortgages sorted for people with a history of missed payments, CCJs, defaults, debt management programmes, IVAs and bankruptcies.
