Advice on lenders for low LTV but poor credit score and non-standard property, please?

[DivineInspiration]

I own a flat outright: it was valued a couple of months ago at £120,000. From January 2012 I'll be letting it out for £675 a month. I'm looking for a let-to-buy mortgage to borrow £40,000 in equity to cover my share of the deposit for a mortgage on the house DP and I are buying together.

However - and this is where I'm hoping somebody could kindly advise or point me in the direction of a good mortgage broker - I'm facing three main problems:

1. My flat is ex-local authority and therefore many lenders will either not lend on it at all or are offering very high interest rates on what is essentially an LTV of under 35%.

1. I have a (fairly small - £470) default on a credit card from 3 years ago, though I'm not entirely sure how it happened - I never received late payment reminders or a notice of default from the bank, but I wasn't exactly on top of my finances then, either (period of mental ill-health and redundancy). It shows as settled on my credit report. Regardless, it's there for another 3 years and I just have to live with that. No other defaults or CCJs.

3: Even notwithstanding my aforementioned default, my credit score is poor because I've never really had any credit apart from one (defaulted) credit card, mobile phone contract and utility contracts. Over the past 6 months I've tried to remedy this by taking out a couple of credit cards which I pay off in full every month, but I don't think this is going to have boosted my score up enough. My credit score is below 500.

My broker has said he could get me a mortgage on an ex-LA flat; or a mortgage for bad credit; but both together he's found near-impossible. I think I've hit a brick wall but just putting this out there in case anybody else has been in a similar position and knows where I can turn?

Thanks in advance :)

Just to be clear. You're trying to release £40k equity from the buy-to-let flat in order to pay a deposit on a house that you are buying with your DP? And, because of one small default amount and the fact that the flat is ex LA, you're struggling to remortgage the property?

If you want a second/third opinion from a mortgage broker/advisor, have you tried one of the many agencies that advertise online such as moneysupermarket.com? My understanding of BTL when I looked at doing it a few years ago was that the rates offered were rather higher than for a residential property. Maybe higher rates are something you'll have to factor in?

Thanks for replying - yes, that's about the sum of my situation.

Regarding the higher interest payments: I've done a few spreadsheets of my finances and whilst the kind of rates (8% - 9%) I was being offered from lenders willing to lend on ex-LA would be high, they would be do-able if I gritted my teeth. It's more that it appears the lenders who will lend on an ex-LA property won't also lend to somebody with my credit score: Leeds Building Society were the only one this particular broker could find who would, but in the end it turned out to only be a residential mortgage not a BTL.

The broker was one who called me as a result of a Moneysupermarket request - I've been advised to try London & Country by a friend and am awaiting their call-back, but having spoken to everyone on the highstreet already plus previous broker I'm beginning to lose hope and seriously considering approaching the Bank of Mum and Dad (which I really don't want to do at all, but we need to move and move soon for jobs.)

Would it be easier to sell the property, realise all the capital and then invest the remainder and get an income from it that way?

It's an option I've considered, although I'd like to avoid it if possible. My flat will be just as difficult to sell, I imagine - I paid cash and expect anybody else would have to do likewise which restricts my market to developers, really. It was always intended to be my pension, but I'm not financially savvy and am a bit scared of words like capital, reinvestment etc Plus this is a big move for DP and me (London to rural Scotland, both of us changing career paths) and part of me is clinging to the idea of having 'home' to return to if it doesn't pan out. This is particularly silly of me, I know, because it wouldn't be that straightforward to just come back. But still.

Thanks for your suggestions :)

Have you looked at a loan secured on your property?

What is your property constructed of? I have a lot of experience with non-standard construction and poor credit but need more details in relation to the construction of the property as to whether I have friends who may be able to help.

If it rents for £675pcm you wouldn't get £120k if you sold it or on a BTL valuation - more like £100k IMHO which leaves you at 40% LTV. Given the rest of the picture, I would say this is not really low, you wouldn't get more than 50% in the current market IMHO.

You don't have to borrow from your parents - you could just use them as guarantors.

As gonzo says, non-standard construction is going to be more of a problem than just ex-LA but every area with lots of these has mortgage providers that specialise. This is generally more of a problem with houses, but if it is a flat with non-standard construction or in a block that has not been refurbished there is going to be a huge bill for refurbishment coming up in the future.

The rate is going to be very high though as it will be loaded for BTL, ex-LA, non-standard construction if applicable, poor credit rating if no guarantor...

Hi Gonzo, thanks for replying. It's brick-built with security doors and accessed internally, no Section 20 works planned, new windows, doors and lifts put in four years ago - it's a lovely flat (if I dare say so myself; I've put a bit of work into it) in really nice, clean block in a tidy area but nevertheless still on a council estate which reduces its desirability. It's a one bedroom flat, which really means that other than developers looking for flats in up-and-coming parts of London, my market is first time buyers, who would probably struggle to get a high LTV mortgage for somewhere like mine. This is one of the reasons I don't think selling is a good plan right now. I'd really appreciate it if you knew anybody able to help.

mranchovy - it's been valued several times at anywhere between £120K - £160K over the past few months - there's not a lot on the market in the immediate area to compare it to, so I think agents struggle a bit to value it accurately - and I'm assuming the lowest valuation for mortgage valuation purposes. I have no idea what an actual selling price would be in this market and I imagine you're right about not getting a valuation price for it - though I'd be surprised if a well-presented flat just about anywhere in London didn't fetch a bit more than £100K. Maybe that's so, though. I'm letting it for slightly below market rate to a colleague I know won't give me any grief as a tenant. Thanks for your observations :).

Thanks again to all.

DI I am going to PM you because I am a little confused.