How do I increase my chances of being approved for a mortgage after bankruptcy?
Getting a mortgage after bankruptcy can be difficult but not impossible, with many highstreet lenders declining applications with previous bankruptcy. Our specialist brokers and the lenders they work with believe that everyone deserves consideration, and could help you find a mortgage even after bankruptcy.
Some lenders will consider your mortgage application immediately after you’re discharged. Others might require you to have been discharged for at least 12 months, if not for several years. The main issue facing borrowers is their deposit amount. The longer since your discharge, the more likely a lender will be to accept you for a higher Loan to Value (LTV) product.
Speak to us today about your situation and we can advise on the right path for you.
How we can help
Can I get a mortgage after bankruptcy?
If you’ve been bankrupt in the past, it’s likely you’ll struggle to find a mortgage with a highstreet lender.
Luckily there are plenty of specialist lenders that will consider applicants who’ve faced bankruptcy, and our brokers at Clever Mortgages could help you access these lenders.
How to get a mortgage after bankruptcy
Getting a mortgage after being made bankrupt is certainly possible, and there are a few things you can do to give yourself the best chance.
Speak to a specialist broker
Speaking to a broker, such as Clever Mortgages who have experience in dealing with mortgages after bankrupcy can help your chances of approval. We have relationships with lenders most likely to say yes.
Save up a large deposit:
The biggest factor in getting a mortgage after being discharged from bankruptcy is the size of your deposit. Your bankruptcy will play a large part in how you are viewed financially and having a larger deposit will help lenders view you as a lower risk, you’re more likely to be accepted for a lower LTV mortgage so saving up a fair portion of the property’s value will help increase your chances for approval.
Having a stable income, or consistent employment in the same field helps boost your application and make you a more attractive borrower. Potential lenders will want to know you have the income needed to afford mortgage repayments.
Know what deposit is realistic
The biggest factor in getting a mortgage after being discharged from bankruptcy is the deposit you can supply. If you know early on what is realistic, it informs you on the property values that are achievable. It could be that now isn’t the right time to buy a property. Understanding your deposit lets you plan for your short, medium and long-term future.
Frequently asked questions
How soon can I get a mortgage after bankruptcy?
Some specialist lenders might consider your mortgage application immediately after you’re discharged from bankruptcy. Others might prefer you to have been discharged for at least 12 months or for several years.
The main issue facing borrowers is their deposit amount. The more time that has passed since your discharge, the more likely a lender will be to accept you for a higher Loan to Value (LTV) product. If you’ve been discharged bankrupt for a year or less, a lender may need you to supply a deposit of at least 50%. After 2 or 3 years, provided you can prove good money management, this could drop to 25% LTV. When you have been discharged for over 6 years, you could become eligible for 95% mortgages.
What is bankruptcy?
Bankruptcy is a legal proceeding involving an individual who is unable to repay their debts. It allows those who have no way of repaying their debts to start fresh and – depending on assets owned – sometimes allows creditors to reclaim some of the money owed.
It costs £680 to apply for bankruptcy, and you can only do it online. https://www.gov.uk/apply-for-bankruptcy
The GOV.UK website advises:
“You’ll need to provide information about your income, outgoings and debts, including:
- wage slips
- benefits or pension statements
- bills – for example, electricity, credit card and council tax
- letters from a bailiff or enforcement agent
You cannot submit your application until you’ve paid the full fee. You can pay in instalments if you cannot afford to pay it all at once. If you are struggling to pay the fee, contact a debt adviser about charities that may be able to help.”
Who can be made bankrupt?
There are three reasons that can allow a person to become bankrupt:
- you can’t afford to repay your debts and want to declare bankruptcy
- you owe your creditors £5000 or more and they wish to apply for bankruptcy on your behalf
- you’ve broken the terms of an individual voluntary agreement (IVA) and your insolvency practitioner has applied for your bankruptcy
How does bankruptcy work?
If your application, or your creditors application on your behalf, for bankruptcy is accepted then your assets would no longer be considered yours and your bank or building society account(s) would be frozen. There are exempt goods, like everyday household items and things you need to work, such as your computer or car.
Someone will be appointed to manage your bankruptcy, either an official receiver (an officer of the court) or an insolvency practitioner. This person will be your “trustee” and will handle your assets and bank accounts.
Your assets could be sold to help your creditors reclaim some of the money you owe. You might also need to make monthly repayments from spare income, but only if you can afford to do so. If your trustee decided you can afford it, this could become an Income Payments Agreement (IPA) and can last for up to 3 years.
While you’re in a bankruptcy order, there will be restrictions you need to follow. You cannot:
- take out more than £500 in credit without declaring your bankruptcy
- direct a company without court permission
- create, manage or promote a company without permission
- manage a business with a different name without declaring your bankruptcy
- work as an insolvency practitioner
A bankruptcy order usually lasts a year, after which you should be discharged. This would give you a fresh start, effectively meaning would no longer owe the debts included in your order and your creditors won’t be able to chase the money you owed.
You’ll still need to pay any debts not included in your bankruptcy order, such as student loans but outside of that you should be free from the debt and the restrictions associated with a bankruptcy order should be lifted. This means upon discharge from bankruptcy, you’re no longer limited with the amount of credit you can access, and pursuing a mortgage is viable.
Improve your credit rating
Some lenders may consider you soon after being discharged from bankruptcy, but others will need to see a period of responsible money management. You can improve your credit rating by:
Check your credit report
The first step to improving your credit rating is understanding it. Credit reference agencies such as Experian or Equifax, store information on your borrowing and subsequent repayment history. They give a credit score that shows how likely you are to make your repayments. Your credit report shows your credit history over the past 6 years. It shows mortgages, credit cards, loans, phone bills, as well as some utilities. Whilst you’re obviously aware of your bankruptcy, it could be it’s not displayed as discharged on your report. Alternatively, the dates may not match up correctly. You should check your credit report to ensure that all the information is correct and up to date.
Make sure you’re on the electoral roll
This makes it easier for lenders to confirm your identity, as they want to check that you live where you say you do. It only takes around 5 minutes to make your electoral roll application and you can do so here.
Close your unused accounts
You should close any credit accounts you no longer use. Not only is this good housekeeping, lenders may not only look at what you currently owe but also the credit limits available to you. It may be better to try and display fewer, better-managed credit accounts than a large number of active, if unused ones.
Don’t miss your payments
It may sound obvious, but keeping up your payments helps your credit score. You may think that having missed payments in the past the damage has been done. However, missed payments have less impact as time goes on, so provided you keep on top of your current ones it should help your score.
Don’t make too many credit applications at once
Making different applications in quick succession, even for different products, could harm your credit score. Numerous applications make it appear you’re overly reliant on credit. It could be you’re considering making a number of applications to find the best deal. In these instances, it’s best to make an application through a mortgage broker. A broker will look through your application before submitting to a lender on their panel. This means you’re placed with the lender who is most likely to approve you or give you the best option based on your circumstances.
Use a mortgage broker
High street lenders are unlikely to be able to offer you a mortgage if you have a history of bad credit. A mortgage broker has access to specialist lenders who can offer mortgages to those with a less than perfect credit rating. They can also help if you’re looking to apply for a mortgage with an IVA, CCJs or have any defaults.