Applying for a mortgage after bankruptcy can be challenging, however the good news is its not impossible. The process of buying a home after bankruptcy has a lot to do with time, as you won’t be able to apply for a mortgage until you’ve been officially discharged.
Once you have had a bankruptcy discharge, which may take up to twelve months, you will be able to discuss your mortgage options with a wide range of specialist lenders. After more time passes, you will be more easily accepted for a mortgage.
With the right help and professional advice from lenders, you will be able to figure out what mortgages suit your situation.
In this blog we will discuss what bankruptcy is, how it affects your mortgage application, when you can apply for a mortgage after bankruptcy, and tips on how to successfully apply for a mortgage as a discharged bankrupt.
What does bankruptcy mean?
Bankruptcy is the legal status for those who are unable to repay money that they owe. You can only be made bankrupt, or declare bankruptcy, if you have debts over £5,000, but it is often seen as a last resort.
How does bankruptcy work?
When you are declared as bankrupt, the value of your possessions is split up and shared among those you owe money to. This includes everything except the essentials, so your home, car and jewellery are taken to pay back your debts.
Depending on your income, you will also be asked to repay your bankruptcy debt for up to three years.
Once you’re declared bankrupt, you wont have to deal with creditors and most lenders will stop most types of court action against you. After one year, you will usually be discharged – free from your debts.
Can I get a mortgage after bankruptcy?
Despite what people often hear, it is possible to get a mortgage after a bankruptcy. However, just like any other credit issues, it can cause some problems to lenders when applying for a mortgage. Some who just decline anyone with bankruptcy in their file.
Despite this, it will be good news if you find the right lender who is happy to consider you for a mortgage, there are a handful of mainstream lenders and a lot of specialists available to help you get a mortgage after being bankrupt.
It may be possible to be offered a variety of mortgage products to suit your situation and your plan for the future, even with your bankruptcy on file.
How will a bankruptcy discharge affect my mortgage application?
It is true that you are seen as much more risk-some to lenders after you’ve filed for bankruptcy. However, specialist lenders can offer a range of mortgage products to help you get back on track after you’ve been discharged.
To gain mortgage approval, there are a few things you can do to help boost your application and speaking to a mortgage broker about your situation will help you gain a bit of knowledge on the right mortgage for you.
A good place to start is to have a good credit score, just in case your credit approval is rejected. If you find yourself suffering from other credit issues after you’ve been discharged, you may qualify less for a mortgage.
However, bankruptcy mortgages do exist and some mortgage advisors may offer this to you.
Bad credit mortgages
Bad Credit mortgages can be offered to those with credit problems, and can be an option as a mortgage after bankruptcy for those who have been discharged for less than three years, they are, however, met with higher fees and rates.
Getting a mortgage with bad credit in today’s market can be tough, but it isn’t impossible. There are an increasing number of specialist mortgage lenders who assess and accept applications with poor credit reports.
Having a credit file that isn’t squeaky clean may limit your mortgage options, but you shouldn’t give up hope of getting a new mortgage if you’ve had financial difficulties in your past, such as bankruptcy.
When can I apply for a mortgage after bankruptcy?
Until you have been discharged, you won’t be in a position to apply for a mortgage on a home. Being discharged usually takes up to 12 months, but depending on the courts decision, it can take less.
However, after you’ve been discharged you might find it more difficult to apply for a mortgage straight away, it often takes a good few years of good conduct before you gain trust from lenders, meaning your lending options may be limited.
The exact point where you will become eligible to apply for a mortgage after bankruptcy differs between lenders.
You may find that some are happy to offer you a mortgage immediately after discharge, but these are then often met with a very strict criteria for your application, examples are; requiring a larger deposit and you will find interest rates and fees are much more pricey.
What if my bankruptcy happened some time ago?
As the years pass, your bankruptcy becomes less relevant to lenders, and when you’ve been discharged for four years, mortgage lenders will view you as no different than those without bankruptcy in their past.
Mortgage lenders may offer you better rates and fees, and will approve an application for a conventional mortgage that doesn’t have a large deposit.
This is even more so if you have no further credit issues, and your credit file has been kept intact since you were declared bankrupt. After four to five years, your mortgage eligibility for better rates increases and your deposit should be between 5%-10%.
Will previous bankruptcy affect the interest rates on a mortgage?
Interest rates for those who have been bankrupt in the past are often higher than for those with a clean credit history. This is due to the lender who is offering you the mortgage is taking on a much higher risk.
The longer you have been discharged, you will find it easier getting a mortgage as most lenders will consider your application, they will offer more favourable rates and at a higher loan to value ratio.
Those who have been discharged for over four to five years, with a good credit history, will find they can borrow up to 95% loan to value, like most other borrowers.
However, those who have been discharged for under two years will find it much harder, oftentimes having to put down a 25% deposit.
Does deposit amount matter?
The more you can save for a deposit on a new mortgage, the better, especially for discharged bankrupts. Having a large deposit lowers your risk in the eyes of your mortgage lender, and you will find you have access to more lenders.
If you have a smaller deposit, the chance of you getting a mortgage is small but still possible, however you will have less lenders to approach.
Mortgage rates may not be as competitive when they’re met with a higher deposit. Aiming for a deposit over 20% means your mortgage lender will be able to offer you better rates and mortgage products.
National Hunter database
The National Hunter Database is a register of those who have been made bankrupt in the UK, this also includes those who have been discharged for over six years.
Lenders will check this report, but it doesn’t usually form as a part of the initial credit scoring. Unfortunately as a result, applicants may find they get accepted in the initial application stage but are then later declined when their previous bankruptcy gets brought to light.
Those who have no trace of bad credit and have been discharged for over six years often just go to any lender available, but due to the National Hunter Database get declined after a full application, despite passing the initial credit score. This can be frustrating those applying to get a mortgage after bankruptcy.
How do I get a mortgage after bankruptcy?
If you are looking for a mortgage but have been made bankrupt in the past, there are some things you can do to make sure your mortgage application has the best chance of approval.
Check all your credit reports
The first thing you should do when you want to apply for a mortgage is check your credit score with the three main credit reference agencies that lenders use in the UK (Experian, Equifax and Call credit).
You should always update your records correctly, as you may be declined if your information on your credit files don’t match up to any settlement dates of accounts you once held. To lenders this appears as outstanding balances that have happened since the bankruptcy, and give bad credit.
After this you should speak to a mortgage adviser who will make the decision about whether or not your credit history is sufficient enough to apply for mortgages.
If you have a poor credit score, then gaining mortgage approval is much more difficult, getting all your credit information updated and speaking to a specialist is crucial.
Check your mortgage eligibility
Even after you have been discharged, you may find you are still not eligible for all mortgages available. So you should make an enquiry with specialist brokers to establish what lenders would consider an application in your situation and if you can qualify now.
If you don’t qualify, then they will give you advice on what you need to do to improve your credit and gain a higher acceptance rate. For instance, you may have to correct your credit report, wait for your discharge to be a bit older, or save more on your deposit.
Rebuild your credit score
To show mortgage lenders that you are financially responsible and meet monthly payments, rebuilding your credit rating is a great place to start. There are many ways to do this, such as:
- Manage and pay your bills on time
- Register for the electoral roll
- Don’t max your credit
- Limit credit applications
- Avoid payday loans
- Use a credit-builder loan or card
- Take out a small form of credit
Your specialist mortgage adviser will let you know exactly what you should do to improve your credit and increase your chances of getting a mortgage.
Check your credit score today!
Each credit reference agency calculates your credit rating slightly differently and has a different scoring system. Which means that what counts as a good credit score will depend on which of the four major agencies your lender uses.
Experian, Equifax, Crediva and TransUnion, each credit agency could have different information showing, therefore, we have teamed up with Check My File. They not only offer a free 30-day trial but they also have all 4 agencies above showing on the one report which means any issues affecting your credit rating can be easily picked up by one of our mortgage advisors.
In order to obtain your report, click on the below link to get a 30 day free trial with CheckMyFile and download your report, after the free 30 day trial they will charge £14.99 per month & this subscription can be cancelled anytime.
Provide us with a credit report today, and uncover the issues that could be affecting your credit file! CLICK HERE to access your free credit report with the four top credit agencies all in one report!
Other credit issues and how they impact a mortgage application
If you have had new credit issues after your bankruptcy, you will find that this will cause some problems when applying for a mortgage. Lenders will consider you higher risk, and will want to see a clean credit report.
A lot of mortgage lenders will decline your mortgage application if you show further issues on your credit report, depending on what the issues are and how recent they are on your credit report, some lenders may offer a mortgage with defaults, or a mortgage with a County Court Judgement (CCJ).
If you have had issues on your credit file before the bankruptcy, such as missed payments, CCJs, mortgage arrears and so on, then your bankruptcy will wipe them off as a settlement to repay bankruptcy debt.
This resets your credit file, and the following year you wont be able to borrow or take out a credit agreement, after the year has passed you can start rebuilding your credit score.
Which mortgage lenders accept bankrupts?
There are no rules when it comes to what lenders will offer mortgages for discharged bankrupts, and those who will lend to you after your bankruptcy will often consider each individual case as unique.
Mainstream lenders such as Halifax and Santander might offer favourable rates, and ignore the bankruptcy when you pass a certain number of years, under the right circumstances.
There are a few things you can do if you have been bankrupt in the past that will give your mortgage application the best chance of approval. Most lenders will consider your credit score, outgoings and your income.
Buy to let mortgage after bankruptcy
If you require a buy-to-let mortgage after bankruptcy, then you will need to speak to an expert mortgage adviser in this field. Since bankruptcy is a specialist area, so having an expert by your side will help you improve your chances of getting a new mortgage after bankruptcy.
Buy-to-let mortgage criteria
Some criteria to meet when applying for a buy-to-let mortgage after bankruptcy are:
- Having clean credit reports since being discharged
- Your discharge date being at least three years ago
- A large deposit, minimum of 25%
- Already being a homeowner
- Can prove your income (self-employed, employed or retired)
If you don’t meet the mentioned criteria, you can still speak to a specialist and gain some mortgage advice, and what the next steps are for you in your situation to apply for a new mortgage.
Bankruptcy Mortgage Broker & Advisers
Our specialist mortgage brokers understand the obstacles you’re facing as a discharged bankrupt, and most importantly they have the knowledge and experience to improve your chances of getting a mortgage after bankruptcy.
With access to the whole market, we can source a specialist mortgage lender that has a much more flexible criteria to meet your needs and support your long term goals, compared to high street banks.