Mortgages after Bankruptcy

Mortgage lenders make lending decisions based on risk level. They look for anything in your credit file that might indicate you won’t be able to keep up with your mortgage repayments. So any kind of bad credit is a red flag for lenders.

Bankruptcy is seen as a serious credit issue because it tells them you’ve had issues with repaying debts in the past, even if this is no longer the case. A bankruptcy stays on your credit file for a period of six years.

The biggest factor lenders will consider when deciding to give you a mortgage is how long it’s been since your bankruptcy was officially discharged.You won’t be able to apply for a mortgage until this has happened. It’s usually after 12 months, but can be sooner in some cases. The more recently you were discharged from bankruptcy, the harder it’ll be to get approved for a mortgage. But some specialist lenders will consider your application as soon as you’ve been discharged, as long as your mortgage broker presents your application well! 

You’ll have a much better chance of being approved if you work with a specialist mortgage broker. They’ll have access to the right lenders and know how to present your application to showcase why the bankruptcy happened and how you’re now in a position to make your repayments every month.

Sometimes, as a result of a bankruptcy you’ll be asked to put down a higher deposit, and the interest rate available to you could be higher. Again, your Mortgage Expert work to find you the most competitive deal.

A higher deposit means you’re asking to borrow less money from the lender and are showing a bigger commitment. For that reason, anyone who’s been declared bankrupt will often need to put down a larger deposit in order to successfully get a mortgage. However it all depends on how recently you were discharged and your current situation.

Your mortgage interest rates are likely to be higher after a bankruptcy compared to someone without a bankruptcy. A higher interest rate on your mortgage means that the lender is better rewarded for taking the ‘risk’ of lending you money. 

The interest rate on your mortgage should reduce as the bankruptcy becomes further away in time. For example, if the bankruptcy was a year ago, you could expect the interest rates to be higher than if the bankruptcy was two years ago.

If you were discharged from bankruptcy years ago, and have an otherwise perfect credit score, you could expect to borrow 80-95% loan to value (LTV) just like any other borrower with a great credit score. If you have a poor credit score from other financial issues, you’ll be able to borrow a lower loan-to-value.

Many high street lenders such as banks and building societies won’t consider lending to an applicant who’s been declared bankrupt in the past. Especially if it was recent.

But there are specialist lenders who will consider you, especially if your application is prepared and presented by a mortgage broker with specialist experience in this area. Often, mortgages that will be appropriate for you will only be available through a broker, and not directly to you. Make an enquiry to speak to one of our friendly Mortgage Experts.

If your bankruptcy has been discharged, there’s nothing to stop you from applying for a mortgage. But the more recently this was, the harder it will be for you to get approved. The other thing that you need to consider is your current financial situation and your ability to meet repayments each month.

Read more in our Guide: How Long After Bankruptcy Until I Can Get a Mortgage?

It’s a really good idea to declare it to save you time, effort and money. 

Bankruptcy will be visible on your credit file for a period of six years. After that, it will be removed. However, the majority of lenders will specifically ask you during your application whether you have previously been declared bankrupt, as well as information around any other credit issues. If you are asked about this, you should disclose any bankruptcy, even if you were discharged from this more than six years ago. 

The National Hunter database is a database of anyone who has ever been bankrupt in the UK. Even if you were discharged from bankruptcy, your name will still be on the database. Because lenders might check the database, it’s always best to tell your mortgage broker and lender about the bankruptcy to avoid being rejected further down the line. 

Being upfront about it will save you time and money. That’s because sometimes the lender's initial checks will come back successful – you could get the green light on your credit check, get a decision-in-principle (DIP) and even start paying fees for property valuations. But then you could get rejected later on because of the The National Hunter Database. Letting them know before you make a full application will make sure you always get the right lender for you.

Many lenders who’ll consider giving you a mortgage after a bankruptcy will want to see a clean credit file after the bankruptcy as a condition of lending to you. It’s a good idea to make sure whatever payment defaulted to result in the bankruptcy has been paid in full before applying for a mortgage. 

If you’ve had new credit issues since your bankruptcy like being on a debt management plan, missed payments, a CCJ, any defaults or arrears; it’s also a good idea to make sure they’re settled before applying for a mortgage. If any of these issues are still open, it will negatively impact your chances of getting a mortgage. However, you should speak to a specialist bad credit mortgage broker (like us!) who can let you know exactly what options are available to you.

Here are some top tips for improving your credit score after bankruptcy:

• Pay off any outstanding debt in full (including credit cards, loans, and similar). If that’s not possible, just pay as much as you can.

• Make sure you’re listed on the electoral roll. 

• Consider reviewing the number of credit cards and accounts you’ve got open. Even if they don’t have outstanding balances. 

• Use your available credit in a sensible way. For example, make small purchases on your credit card and pay off the balance in full each month. That can help build your score because it shows that you’re making repayments on time.

Read more tips on boosting your credit rating before applying for a mortgage.