A poor credit history makes a Right to Buy purchase harder, but it rules far fewer people out than most tenants assume. The discount does a lot of the heavy lifting, and there is a group of lenders that will look past credit problems provided the rest of the case makes sense.
Can I get a Right to Buy mortgage with bad credit?
Often, yes. Right to Buy sits in a slightly unusual position: because your discount acts as your deposit, the loan is frequently a smaller proportion of what the property is actually worth than a normal purchase would be. A lender looking at a home worth £180,000 with a £146,000 mortgage on it is lending at around 81% of market value, even though it is 100% of the price you are paying.
That extra security matters. It gives lenders more room to take a view on credit history than they would have on a 95% purchase, and it is the single biggest reason adverse credit cases get placed on Right to Buy.
What counts as bad credit
Lenders do not treat all credit problems the same way. Broadly, in increasing order of difficulty:
Missed or late payments. A handful on a credit card or phone contract, especially if they are a couple of years old, are usually the easiest to work around.
Defaults. How much they matter depends on the amount, how long ago it was registered, and whether it has been satisfied. A small satisfied default from three years ago is a very different conversation from an unsatisfied one from last month.
County court judgments. Treated more seriously than defaults, and again the age, size and whether it has been satisfied all count.
Debt management plans and IVAs. Not necessarily a barrier, but they narrow the list of lenders considerably, and an active arrangement is harder than a completed one.
Bankruptcy and repossession. The hardest, and usually a question of how many years have passed since discharge.
What matters most in nearly every case is recency. Credit problems age out. Something from four years ago that has been clean since is a far easier case than something from six months ago, whatever the amount involved.
Why the discount works in your favour
Two effects. First, as above, the effective loan to value against the true market value of the property is lower than it looks, and lower risk buys you leeway.
Second, most Right to Buy applicants have a long, stable tenancy behind them. A ten or twenty year rent payment record is genuine evidence of affordability, and lenders who assess cases by hand rather than by automated score will take it into account, even though it does not show on a credit file.
Which lenders will consider you
High street lenders will normally decline anything beyond very minor, historic blips on a Right to Buy case. The realistic options are smaller building societies, which underwrite manually and will read the explanation behind a credit event, and specialist adverse credit lenders, which price for the risk and set clear published criteria on how old a default or judgment has to be.
Which of those is right depends on the detail, and applying to the wrong one leaves a hard search on your file for nothing. Our page on Right to Buy mortgage lenders explains how the three groups differ.
How to improve your chances before you apply
Get your credit reports. All three agencies, because they hold different data. Check for errors, and for old entries that should have dropped off.
Satisfy what you can. A satisfied default is materially better than an unsatisfied one with several lenders, and settling it before you apply can change which lenders will look at the case.
Register to vote at your current address. Quick, free, and it helps.
Leave credit alone in the run up. No new cards, no car finance, no payday borrowing in the months before an application.
Write down the story. A manual underwriter will read a short, factual explanation of what happened and what changed. Redundancy, illness or a relationship breakdown followed by three clean years is a case an underwriter can approve. Silence is not.
What bad credit costs you
Expect a higher interest rate than the best buy tables show, and in some cases a lender or broker fee. That is the trade for getting the purchase done. The usual plan is to take a two or three year product, keep the payments clean, and remortgage onto a mainstream rate once the adverse credit is old enough to stop mattering. Because you are buying at a discount, there is often equity available to help that later remortgage.
What to do next
Start with the numbers. Our Right to Buy discount calculator gives you a rough idea of the discount and the price you would pay. Then talk to us before you apply anywhere, so the application goes to a lender that is likely to say yes rather than one that leaves a footprint and a decline.
We advise on Right to Buy from our offices in Ipswich, Felixstowe and Haverhill, and the first conversation is free with no obligation.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.