Mortgage after Bankruptcy

Your financial situation, including your ability to get a mortgage, will be greatly impacted by bankruptcy. That said, even after you have gone bankrupt, you will still have the option to apply for a mortgage in the future.

Mortgage After Bankruptcy: Understanding the Impact

Going bankrupt will seriously impact your credit score. As a result, it will make it very difficult for you to get approved for a mortgage until your credit rating improves.

You will remain bankrupt for 12 months. During this time, you will not be able to apply for a mortgage.

Once you are discharged – after the year of your bankruptcy – you will be able to start rebuilding your credit rating. You can often assist this process by using a so-called credit repair credit card.

2-3 years after the date you originally went bankrupt, you will start to become eligible for bank loans and other forms of unsecured credit. At this time, there may also be some specialist lenders who might consider giving you a mortgage. However, they will charge much higher rates of interest than standard high-street lenders.

You will not be eligible for a mortgage from a high street lender (for example Nationwide, Barclays and Halifax) until the record of your bankruptcy has been fully deleted from your credit file. This will happen 6 years after the start date.

understanding the impact of your mortgage after being bankrupt

What Factors Affect Getting a Mortgage After Bankruptcy?

After you have gone bankrupt, there are a number of things that will impact your ability to get a mortgage:

Time since you went Bankrupt:

You will not be able to get a mortgage for the year you are bankrupt. After that, the longer you wait, the better your chances of being accepted by a lender will be. As a rule of thumb, some sub-prime lenders may be willing to consider you 2-3 years after you are discharged. However, standard high street lenders are unlikely to be able to help until 6 years after your bankruptcy start date.

Deposit available:

The larger deposit you are able to offer, the greater your chances of successfully getting a mortgage after bankruptcy will be. A larger deposit will often make up for a lower credit score particularly when working with sub-prime mortgage lenders. However, high street lenders may still reject you until your credit file is clear regardless of the size of deposit you have.

Credit Score:

Your credit rating has a significant impact on your ability to get a mortgage after bankruptcy. Once you are discharged and your credit score starts to repair, your chances of getting a mortgage will improve. That said, your score will not be back to full strength until the record of your bankruptcy is taken off your credit file completely. This happens automatically 6 years from the start date. This is a legal time scale and can’t be shortened.

Income to Mortgage Ratio:

Regardless of the size of your deposit, your annual income will significantly affect the size of mortgage you are able to borrow. As a rule of thumb, most mortgage lenders will be reluctant to offer more than 4-5 times your gross annual income.

Mortgage Type:

Generally speaking, there are two types of mortgage lenders in England & Wales. So-called sub-prime lenders are prepared to lend to people with a higher perceived risk. In return, they charge a higher rate of interest. If your bankruptcy record is still in your credit file, you are in this category.

So-called prime lenders – also known as the High Street lenders such as Nationwide, Barclays and Halifax – will not normally lend unless you can show a clear credit file. To achieve this you will have to wait for 6 years from the date you went bankrupt. The benefit of waiting is likely to be a cheaper mortgage because of lower interest charges.

Steps to Improve Your Chances of Getting a Mortgage After Bankruptcy

1. Rebuild your credit score

There is little you can do to start rebuilding your credit score until you are discharged from bankruptcy. Once your bankruptcy is over, you can consider the following suggestions:

Start building a record of responsible credit usage – To do this you will need to start using a so-called credit repair credit card. You should ensure that the balance of your spending is paid off IN FULL at the end of each month.

Fix any mistakes or inaccuracies on your credit file – You need to get a copy of your credit file. The lenders included in your bankruptcy will still be recorded. However, they should change the account status to ‘partially satisfied’. Where this is not the case you can demand that they make the change.

ways to improve your credit score to help get a mortgage after bankruptcy

2. Wait the required time

You will normally have to wait 2-3 years from the date your bankruptcy ends before you are eligible for a sub-prime mortgage.

Applications for a high street mortgage will not normally be accepted until 6 years from the start date of your bankruptcy.

working with a specialist mortgage broker for mortgage after bankruptcy advice

3. Work with a specialist mortgage broker

If you want to apply for a mortgage after bankruptcy, it is important to get the advice of a specialist mortgage broker. Such a broker understands the market and which lenders are likely to accept your application.

Where the record of your bankruptcy has now come off your credit file, using a specialist broker is still advised. Even at this stage, not all high street lenders will be willing to lend to you. Your broker will advise which deals are available to you.

A mortgage broker will charge you a fee for their work. Contact us for advice about specialist mortgage brokers.

4. Get together as big a deposit as you can

Making a sizable deposit will greatly increase your chances of being approved for a mortgage. Most lenders will require a minimum deposit of at least 10%. However, if you want to use a sub-prime lender, this may need to be increased to 25%

Even if you wait to use a high street lender, offering a deposit of more than 10% will significantly widen the mortgage options you have and will potentially lead to more favourable interest rates.

Frequently Asked Questions

Yes. After going bankrupt, you can still get a mortgage. It will require time and work. Going bankrupt does negatively affect your credit score. But not forever.

Generally speaking you will need to wait at least 2-3 years after you are discharged from bankruptcy before you can apply for any type of mortgage.

If you want to get a mortgage from a high street lender, you will need to wait for 6 years from the start date of your bankruptcy. This is the date that the bankruptcy record will be taken off your credit file.

Although it can be difficult, getting a mortgage can still be doable even if you have a low credit score. There are ways to work on improving your credit score and over time improving your financial position.

Bankruptcy Guide For Mortgage After Bankruptcy Advice

Although going bankrupt might be a setback in terms of your finances, it doesn't have to stop you from achieving your goal of becoming a homeowner.

Once you are discharged, you can improve your chances of getting a mortgage and realising your dream of home ownership by being proactive in repairing your credit, saving for a deposit, and choosing the correct lender.

Get in touch with us at Bankruptcy Guide today to receive full support throughout the whole bankruptcy process. We ensure you know exactly what you’re doing and where you are at every stage. Our service does not just include submitting your application. We continue to support you through the year you are bankrupt.

In addition, once you are discharged, we are here to offer advice about credit repair and getting yourself in the best position to apply for a mortgage.

Do you need bankruptcy advice? Get in touch

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