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Mortgages after bankruptcy including options after discharge
You can still get a mortgage depending on how long ago the bankruptcy occurred. More than likely you will have to speak to a specialist lender rather than going through the high street.
What's in this guide?
Speak to a specialist lender
If you are struggling to get a mortgage via the traditional methods you could speak to a specialist lender. They can provide the expertise on a particular area of lending where you’re looking for assistance.
Your credit record stretches back six years so any debts and bankruptcy recorded on it will no longer be visible to lenders after this time. However, you may still be asked whether you’ve ever been bankrupt, which means it could still affect your chances of getting a mortgage.
How soon after bankruptcy can you get a mortgage?
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.
What size deposit do you need?
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.
Which mortgage lenders will lend to you?
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.
Remortgaging after bankruptcy
When you become bankrupt you have to hand over your assets to the person appointed to manage your bankruptcy – known as your trustee – and if you own a home it may have to be sold to pay off your debts.
You can delay this for a year if you have less than £1,000 in equity, you have children or a partner living with you, or someone else, like your partner, can buy the equity or legal title of the property from you. If the trustee hasn’t sold your home after three years and the equity is still less than £1,000 it will be returned to you.
If you don’t lose your home and want to remortgage, the same situation is likely to apply as with purchase mortgages.
Improving your chances of being approved for a mortgage after bankruptcy
There are a number of ways by which you can improve your chances of success when applying for a mortgage post-bankruptcy.
- Using a mortgage broker can be helpful as they have access to all lenders on the market – they can deal with them directly and you may get a better deal as a result. They’ll also know which lenders will be most amenable to your situation and will go to them first, saving you time and potential rejections.
- It’s also worth considering specialist mortgage lenders. These are lenders that specialise in lending to borrowers with a poor credit rating or that have a history of bad credit.
- You could also offer a higher deposit, though overall improving your credit score is probably more worthwhile.
- Waiting until the bankruptcy has been removed from your credit report will be beneficial, as will making an effort to improve your credit rating.
Improving your credit rating
After bankruptcy you will have to build up your credit rating from scratch. By taking out small amounts of credit and paying them off on time you can show lenders you are creditworthy. The more time you do this for, the better your chances. Lenders will also be less sympathetic about any credit problems after bankruptcy so it’s really important to maintain a clean slate.
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