Mortgages after bankruptcy including options after discharge

For the first year after bankruptcy you won’t be able to take out any new credit or loans above £500 without telling the lender you’re bankrupt unless you can get it annulled (cancelled). Your bankruptcy can be cancelled if you pay off all your debts or they are guaranteed by a third party, or if you set up an individual voluntary arrangement (IVA) with your creditors to pay off all or some of your debts.

If you already own a home it’s also possible to borrow against any equity to clear the debts but it may be tricky to find a willing lender.

Once a year has passed you will be discharged from the bankruptcy and most of any remaining debts will be written off, although any assets you had can still be used to pay them off at this stage.

You won’t automatically get any proof of discharge so you should email the Insolvency Service to ask for a confirmation letter. You’ll also need a certificate of discharge to apply for a mortgage – you can get this through the court if you applied for bankruptcy this way or by emailing the Insolvency Service if you applied for it online.

The credit reference agencies won’t be told directly that your bankruptcy has ended so you should get copies of your credit reports from the three major agencies (Callcredit, Equifax and Experian) and ask them to add this information if it’s not there. Also make sure everything else recorded on your reports is accurate.

The closer to discharge you are, the higher the deposit you’ll need. You will also have a bigger choice of lenders prepared to lend to you the further away you get.

To apply for a mortgage just one year after bankruptcy (as soon as you are discharged) you’ll need a minimum deposit of 40% but your chances of being granted one at this stage are small.

Once you are 2 or 3 years from bankruptcy this could fall to 25% and then to 15% when you are 4 years away, when you will be much more likely to be granted a mortgage. You may also be able to get a buy-to-let mortgage then.

After 5 or 6 years your chances increase even further and you may be able to get a mortgage with a 10% deposit, or possibly even 5% at 6 years. Once more than 6 years have passed, getting a mortgage with a 5% deposit is even more likely.

As with any mortgage application, affordability will be assessed, so any payments you are making towards remaining debts will be taken into account.

Different lenders will be prepared to lend at different stages after bankruptcy. If you are less than four years on, you will need to go to a specialist lender, which will charge higher interest rates and fees. After four years or more (three or more after discharge) you will be able to find mainstream lenders prepared to lend to you.

It’s best to get advice from a mortgage broker who can look at the whole market and apply to the lenders more likely to lend to you.

Being turned down won’t hurt your credit score in itself as it won’t be recorded on your credit report but making multiple applications for credit in a short space of time can. This is because every credit check made by a lender when you apply (known as a hard search) is recorded and applying for lots of credit can make lenders think you are in financial difficulty.