Mortgage after Bankruptcy
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Why is it difficult to get a Mortgage when Bankrupt?
Lenders make decisions on whether to grant a mortgage application based on their perceived risk. When they assess a mortgage application, they will look into your credit history and credit score, as well as your current circumstances.
If a mortgage lender sees a notice of bankruptcy on your files, then they may think you will be too high a risk in future and decline your application. Some lenders are willing to consider mortgages for people with a record of bankruptcy, and other adverse credit events, but even they may still place restrictions on the level of borrowing and impose higher deposits and interest rates.
On a positive note, following a discharge from bankruptcy, usually after twelve months, it is possible to obtain a mortgage again, although it will still have an effect on your options.
Information on Mortgages after Bankruptcy
Getting a Mortgage after Bankruptcy
Many lenders, particularly those on the high street, will simply decline an applicant with a history of bankruptcy, and many people who have been declared bankrupt in the past are understandably concerned over their options for obtaining a mortgage. But there is still a fair amount of choice on the market.
The biggest factor to influence a lender’s decision will be the date of the bankruptcy, with the longer amount of time since it occurred, the better. As we write, after six years have passed nearly all lenders will consider a mortgage application, and there is still a decent amount of choice available after three years. It becomes more difficult if it has been just twelve months since the bankruptcy was discharged, but there are some lenders who are prepared to offer a mortgage on the first day – although you may need to find a larger deposit, accept higher interest rates and have taken steps to rebuild your credit score.
How soon after Bankruptcy can I get a Mortgage?
Some lenders – particularly high street providers – will reject a mortgage application straight away if there is any history of bankruptcy, no matter how long it has been or how the applicant’s circumstances have changed. However, this certainly does not apply to the whole market, and nearly all lenders will consider applicants after six years since discharge. The table below gives you an idea of the minimum deposit or amount of equity required compared to the amount of time that has elapsed (correct at the time of writing).
|6 years||5% deposit|
|4-5 years||10%, or possibly 5%|
|3-4 years||15%, or possibly 5%|
Can I Remortgage after Bankruptcy?
Similarly, to finding a normal mortgage, the same criteria will apply when looking to remortgage your current property. While you are still within a bankruptcy period, it is extremely unlikely that a lender will consider you for a remortgage, and you will probably find that borrowing restrictions form part of your bankruptcy order.
After your bankruptcy is discharged, it is possible to remortgage, but your options could be restricted according to a few factors. At the time of writing, there are certain lenders who will confirm a mortgage on the first day after discharge, but you’ll need to put down a large deposit or already have a lot of equity tied up in your current property, and the lender will have strict criteria for approval.
Your options will become much better once twelve months have passed since your bankruptcy was discharged, and improve further the more time elapses, with typical high street rates and levels of deposit achievable after 3-4 years.
Mortgage Lenders for Discharged Bankrupts
If you have experienced a bankruptcy in the past and feel worried at the prospect of approaching brokers or lenders about a mortgage, you may feel reassured by the fact that, at The Mortgage Centres, we get a great number of enquiries from potential borrowers in the same position as yourself, each asking who the most suitable mortgage lenders are for them as discharged bankrupts. This would appear to be quite a simple question, but the reality is that there isn’t a simple answer. As with most things in the mortgages sector, a lot will depend on your own individual circumstances.
The most suitable mortgage lenders for discharged bankrupts will be those that have the broadmindedness and flexibility to be willing to work with applicants with serious adverse credit issues on their records, with criteria that will suit the customer, and who can offer the potential borrower the most favourable mortgage scheme for their needs at that time. As high street lenders tend to avoid working with people with a chequered financial past, this will mean the most suitable mortgage provider for you will be among the number of specialist mortgage lenders operating in the UK market.
While smaller and far lower profile than their high street counterparts, specialist niche-market lenders catering to people with adverse credit still have to comply with the same rules and regulations, and your home and your finance will be no less secure than with a mainstream lender. They will take many factors into account beyond your simple credit rating, including your complete current and historical financial situation, and your more recent approach to credit, borrowing and repayments. Specifically considering an applicant with a bankruptcy on their file, they will be interested to know when you were discharged and the level of deposit or equity you are able to bring to the table.
Mortgage Rates for Discharged Bankrupts
It’s impossible to list a ‘top ten’ of products with the most attractive rates here, as the mortgage market is a highly competitive and constantly shifting landscape, and what might be the most favourable rate today is unlikely to be the case next week, and may even have been withdrawn. However it’s also worth noting that the interest rate is only one aspect of the mortgage, and it is worth considering all the other details involved with the deal as part of your search to find the right scheme for you.
Rates charged will vary from lender to lender and also according to your own individual circumstances around your discharged bankruptcy, and there are several factors that lenders will take into account before outlining making a decision on your suitability for a particular product carrying a specific interest rate. As well as the length of time since the bankruptcy occurred, they will also consider your current level of income and financial commitments, and your credit history since the discharge of the bankruptcy.
While the headline rate of interest will be an obvious factor in your decision, it’s important to realise that the product with the lowest interest rate might not work out to be the most cost-effective mortgage over a longer period of time. Mortgages with lower rates tend to also come with higher associated fees, and may even carry quite strict terms for extra payments if you wanted to switch your mortgage in the future.
The rates charged on your mortgage can also depend on the level of deposit you are able to supply. Putting more money on the table will grant you access to deals with more favourable interest rates, as you are reducing the overall risk to the lender and showing your commitment to the mortgage. In the end, with all these variables to allow for, the ‘best’ rate for you will be one associated with a product that is most suited to your current circumstances and most closely meets your needs.
A respected expert mortgage broker, such as a member of our team here at The Mortgage Centres, has excellent relationships with the great number of specialist mortgage lenders in the UK market, will be aware of offers that have not been widely circulated outside of an exclusive network and is sometimes able to personally negotiate a slightly better rate than was initially offered. Even a reduction of 0.1% on the interest rate can equate to a saving of thousands of pounds over the duration of the loan.
Can I Remortgage to pay off my Bankruptcy?
It’s a good idea to look for ways to pay off your bankruptcy and associated expenses as soon as possible in what is referred to as an annulment in legal terms, when the debt is able to be cancelled and you will be back to a clean sheet with your finances (or at least in the position you were in before the bankruptcy situation). Remortgaging can seem like the easy answer to this – a way to convert your equity to cash and get your bankruptcy behind you, and with an interest rate typically better than for personal loans. However, you may find there are some obstacles involved.
During a bankruptcy period, your ability to access any lines of credit or borrowing is likely to be severely restricted by the order, and your circumstances will not meet the criteria laid out by mortgage providers. You will find that lenders across the board – on the high street or in the specialist sector – will be unwilling to consider your application for a remortgage. However, one option could be to approach specialist ‘second charge’ lenders, but bear in mind that their products can require expert knowledge to navigate, usually come with quite high fees and interest rates, and can only be accessed through a specialist broker.
After your bankruptcy is discharged, your situation starts to become easier and it could be possible to remortgage your property to release funds to pay off your debts within a day of the discharge. This said, your options could be limited depending on a few factors, most obviously the number of lenders willing to confirm a mortgage so soon after a discharged bankruptcy. You will also need to supply a large deposit or already have a decent amount of equity tied up in your current property, and lenders will have strict criteria for you to meet in order for them to approve your application.
I Have a Discharge Bankruptcy - How Do I Improve my Mortgage Charges?
With a bankruptcy in your credit history, no matter what the circumstances were, many lenders will view this as a major red flag, and you may feel there are simply too many obstacles to overcome in your journey to getting a mortgage. It’s true that while the process can certainly be more challenging, and you may have a few more hoops to jump through than most other applicants, obtaining a mortgage that meets your needs, even as a discharged bankrupt, is by no means impossible.
While you will not be able to get a mortgage during the actual bankruptcy period, there are a few actions you can take to put yourself in a better place and be ready when you want to apply for a mortgage again.
Allow time to pass
This may seem obvious, but the more time that you are able to put between you and the bankruptcy period, the better. The impact of adverse credit issues on a lender’s decision lessens the longer ago the event occurred, and sometimes, especially with a severe issue like bankruptcy, it can be wise to bide your time until applying for a mortgage again. There are some lenders who will consider lending to you the first day after it has been discharged, but you are likely to get much better terms and rates after three or four years have passed, and this will also give you time to build up a more positive borrowing record.
Take steps to improve your credit rating
While allowing time for adverse events to become more historic, there are several actions you can take that will help improve your credit history and increase your credit score. You should make sure you are on the electoral register, close all unused credit accounts and cards, get copies of your reports from the three main UK credit reference agencies and make sure that all information they hold onto you is accurate, asking them to correct or update any erroneous entries. You can also take out a new credit card, use it for your day-to-day spending and then ensure you pay off the balance promptly at the end of the month, thereby giving you a pattern of positive borrowing and repayments.
Reduce your debts
If you are able to do so, it is worth paying down as many of your debts as possible, or paying them off altogether. You may also consider consolidating a number of smaller debts into one larger loan, for which you can then arrange a far simpler payment plan. Reducing your overall exposure will count in your favour, and you should aim to have as few financial commitments outside of your mortgage as possible.
Show engagement with your finances
Lenders will feel more confident if they can see you have taken steps to put your finances on an even keel and are actively monitoring your budgets. Ensure that your income is as regular and predictable as possible, draw up spreadsheets or other documents for your household income and outgoings, and perhaps include projections for the next few years. Preparing yourself thoroughly for your mortgage application and providing information that shows you are able to live within your means will be a big help.
Supply a large deposit
When it comes down to it, there is no more effective way of winning the trust of a lender than putting money on the table as a deposit. As well as showing that you are committed to repaying the mortgage and providing security for the lender should they perceive you as a high default risk, a large enough deposit or amount of existing equity will go a long way to counteracting a discharged bankruptcy and may even open the door to a more competitive interest rate.
Get expert advice
All of the above can be a lot to handle by yourself, especially when it comes to planning for your application and framing it in such a way as to present your finances in the most positive light to a lender, and make their decision an easy one. Talking to an expert specialist mortgage broker with many years’ experience of helping people similar to yourself with adverse credit issues will put you in a far stronger position and ensure that you understand the process towards a successful mortgage application. Give us a call today.
How Does Bankruptcy Affect a Mortgage Application?
A bankruptcy not only leaves a negative mark on your credit file that can prejudice mortgage lenders against you when you make an application, it can also seriously curtail your ability to get any other kinds of borrowing or credit while the bankruptcy period is in effect. This can further adversely affect your credit history and make the process of obtaining a mortgage after bankruptcy all the more challenging.
Within the period of a bankruptcy, usually twelve months, other forms of financing or loans will not be open to you, including credit cards, purchase finance and of course mortgages. This means that during this period you are not able to take actions that could help show that you are now a trustworthy and responsible borrower, and a lower risk for lenders. One example would be taking out a new credit card, using it for regular household spending and paying the amount due off promptly at the end of the month, without allowing a balance to build up. This would establish a pattern of reliable borrowing and repayments that will count in your favour.
So, it’s important to allow time to rebuild your credit rating in whatever ways possible. Without doing this after the bankruptcy has been discharged, you could be quickly declined when you apply for a new mortgage, business loan or other type of finance, as the lender will still view you as a higher risk. Applying unsuccessfully for loans on a few occasions will create further issues on your credit file, harming your credit rating and resulting in yet greater problems when you want to obtain a mortgage.
As with other forms of adverse credit, a bankruptcy will drop off your credit history after six years, if everything was handled correctly, and will have less impact the more time passes in the meantime. However, some cases can stay on your file for up to ten years, depending on the nature of the bankruptcy and whether or not you settled any debts.
Following the discharge of a bankruptcy period, if you are able to maintain a spotless credit record and build up a respectable credit history with a series of regular repayments on any lines of credit and prompt settlement of household bills, then you should be able to access mortgages at competitive interest rates within three or four years, depending on your exact circumstances – although this will probably not be with the high street banks.
However, if you continue to face financial problems after the bankruptcy was discharged and incur further measures such as a CCJ, DMP or IVA, this will seriously affect your ability to get a mortgage.
This said, no case is ever set in stone, and there may still be ways for you to get the mortgage you need. You will almost certainly need to enlist the help of an experienced specialist mortgage broker in order to get a complete overview of your options, collate your financial information in the most effective way to win over lenders and to apply for a mortgage with one of the specialist providers catering to people suffering adverse credit issues. Please get in touch today to find out more.
Can a Discharged Bankrupt Obtain a Buy-to-Let Mortgage?
Buy To Let mortgages and bad credit mortgages following a bankruptcy are both in themselves specialist areas within the mortgages sector, and if you are in a situation where you are trying to combine the two, then you might expect to come up against some complex issues. However, you will not necessarily face double the amount of problems, and in fact your journey to a successful mortgage might be made all the more easy, due to you almost certainly needing to work with a specialist mortgage broker in all the arrangements throughout the process.
The most positive aspect of a Buy To Let mortgage, from the view of someone with a discharged bankruptcy, is that it has more in common with a business deal than a conventional residential mortgage. When assessing your suitability for the loan, lenders place less emphasis on your personal income and finances, and far more importance on the anticipated rental revenue from the property in order to make their decision.
In most cases, they will still want to see that an applicant has a minimum income, but much more attention will be given to the value of the property and the level of rent you will be able to charge to cover mortgage payments, maintenance costs, agent’s fees and a contingency fund should the property stand vacant for any period of time, plus a margin for profit.
A standard requirement of most Buy To Let mortgages is a larger than average deposit, and as a discharged bankrupt it will be all the more important that you can put up at least 25–30% of the property’s value up front. Lenders will also be more likely to accept your application if you have managed to keep up a spotless credit record since your bankruptcy was discharged, and it may be necessary to take measures to help rebuild your credit score in advance of you applying for a Buy To Let mortgage.
The kind of specialist lenders you will need to approach for a mortgage in these circumstances are not like their high street cousins. They do not advertise their services publicly and will only accept applications made through a trusted professional mortgage broker, such as a member of our team here at The Mortgage Centres. Our advisers routinely help people in positions like yours to access the finance they need in order to own property on a residential or Buy To Let basis
Specialist Mortgage Brokers
If your credit history and reports contain adverse credit events, such as a bankruptcy, you are likely to need the help of a specialist mortgage broker if you want to apply for a so-called ‘bad credit mortgage’ with lenders offering deals you wouldn’t normally find on the high street.
A specialist mortgage lender is focused on one area of the mortgage market, and knows the providers, the deals and the options inside out, often having good relationships with lenders across the board.
Dealing with a specialist means you can feel safe in their knowledge and expertise, and confident that they are best placed to help match you with the provider and mortgage product that will suit your needs.
Our team at The Mortgage Centres is comprised of several specialists, each an expert in their chosen field, who are able to support each other should a client’s case require knowledge of more than one area of the mortgage market. You’ll have all the experience and expertise you need, all under one roof.