Mortgage After Bankruptcy

It’s a myth that bankruptcy has to be a permanent barrier to getting a mortgage. Our team of brokers at Haysto continues to defy this traditional thinking by helping people with discharged bankruptcies try and secure the mortgage they need. 

With our guidance and experience, it’s possible for you to secure a mortgage after bankruptcy. Read on to discover how we can help make this happen when others can’t. 

What is bankruptcy?

Bankruptcy is a legal process for anyone with debts over £5,000 who can no longer repay the money they owe. You can apply to become bankrupt yourself, or a creditor can do it if you can’t pay back your debts to them. 

When you’re made bankrupt, control of your financial assets is passed to an official receiver of the Insolvency Service*. The receiver (or trustee) then manages your bankruptcy* and the sale of your possessions to repay creditors until you’re discharged - usually after twelve months. 

Once you’ve been discharged, you’ll be free from the debts that caused the bankruptcy order. All financial restrictions placed during the bankruptcy will also be removed. 

Can you get a mortgage after bankruptcy?

Getting a mortgage after bankruptcy can take time and patience, but it’s possible. Once you’ve been discharged, a bankruptcy remains on your credit record for six years. The longer you’ve been discharged, the more mortgage lenders will be willing to consider your application. 

Most, if not all, high-street mortgage lenders will see bankruptcy as a major red flag and won’t consider you for a mortgage while it’s showing on your Credit Report. But, several specialist mortgage lenders will accept people with discharged bankruptcies provided certain conditions are met.  

If you’ve been discharged from bankruptcy, it’s strongly recommended that you speak with a mortgage broker first rather than approaching a mortgage lender directly. A mortgage broker can advise on your eligibility and how best to present your application. 

If you contact us, we’ll arrange for one of our Mortgage Experts with experience in this area to contact you directly and discuss your situation.  

How soon after bankruptcy can I get a mortgage?

There’s nothing stopping you from applying for a mortgage as soon as you’ve been discharged. In reality, the chances of you getting accepted at this point would be near zero. The longer you wait, taking the time to repair your credit score, the better chance you have of being successful. 

Waiting for six years until the bankruptcy event is removed from your credit file will give you ample time to repair your credit record and apply to a larger pool of lenders. However, you don’t necessarily have to wait this long, with some specialist lenders even willing to consider your application just one year after you’ve been discharged. 

Why is it harder to get a mortgage after bankruptcy?

Bankruptcy is a severe form of bad credit and will significantly lower your credit score. As a result, any mortgage lender will see you as a higher risk than someone without this type of credit issue registered against them. 

But if you’re prepared to devote some time between being discharged and the removal of the bankruptcy from your credit history to rebuilding your credit score, then you can boost your chances of getting a mortgage sooner than you might have thought. 

If you’re accepted for a mortgage with bankruptcy still registered on your credit record, you should expect the lender to ask for a larger deposit and charge a higher interest rate on your repayments than for a standard mortgage applicant with no credit issues. 

How much deposit will a mortgage lender ask for? 

The amount of deposit you’ll need will largely depend on how long it’s been since you were discharged from bankruptcy. As the table below illustrates, the longer it’s been, the less deposit will be required. 

Source: Haysto data

So, for example, if you wanted to buy a house for £200,000 and you’d been discharged from bankruptcy three years ago, a lender could ask you for a deposit between £30,000-£40,000 (15%-20%), leaving a mortgage requirement of £160,000-£170,000 (80%-85% LTV). 

How to improve your chances of getting a mortgage after bankruptcy

Getting a mortgage after you’ve been discharged from bankruptcy isn’t always straightforward. But there’s a number of things you can do to give yourself a better chance. These include:

• Taking time to repair your credit score. Start by checking that you’re registered on the electoral roll* at the correct address. Other steps you can take include paying all of your bills on time and making sure any credit cards are paid down each month. It’s a good idea to keep regularly downloading your credit report** to see how it’s improving over time. 

• Be patient. It may be tempting to rush in and want to apply if you see your credit score slightly improve, but more lenders will look at your application the longer you leave it. This is particularly relevant if you were discharged within three years. 

• Save for a deposit. The more deposit you have, the stronger your application will look to more mortgage lenders. So, save as much as possible, regardless of when you were discharged. 

• Speak to a mortgage broker who specialises in mortgages after bankruptcy. Seeking advice from an expert rather than approaching a lender directly is the smart move, particularly in cases like this. They’ll be able to advise you on how to prepare your application and which lenders will be most likely to accept it. 

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Which mortgage lenders can help? 

Several specialist mortgage lenders will consider applications from people with bankruptcy registered on their credit file. These include (but aren’t limited to) Pepper Money, Bluestone Mortgages, Aldermore, and West Bromwich Building Society. 

All of the above mortgage lenders work exclusively with brokers and have a proven track record of success in accepting applicants with this type of credit issue.