Mortgages After Bankruptcy

If you’ve been forced to declare bankruptcy, you might be wondering if it’s possible for you to secure a mortgage in the future. Getting a mortgage after bankruptcy is not easy, but it’s not an impossible task to achieve.

Rebuild your credit rating, and specialist mortgage lenders are open to providing previously bankrupt individuals with a bankruptcy mortgage. These often come with high-interest rates and strict repayment terms, but they also offer a route to homeownership.

If you need to secure a bankruptcy mortgage, the experts at Irwin Insolvency are here to explain everything you need to know.

Can You Get a Mortgage If You Are Bankrupt?

If you are currently classed as an undischarged bankrupt, it’s impossible for you to secure a mortgage. An undischarged bankrupt has yet to complete the terms of their bankruptcy order as stipulated by the courts and, as such, they are unable to secure large loans or lines of credit (including a mortgage) from banks and lenders.

In order to secure a bankruptcy mortgage, you first need to wait until you’ve been discharged from bankruptcy. The bankruptcy period generally lasts for 12 months, and once you have been discharged you are no longer bound by its terms and can apply for loans and credit again.

However, declaring bankruptcy negatively affects your credit score for years to come. For six years after being discharged, any credit search made against you will reveal that you declared bankruptcy. During this six-year period, it’s highly unlikely that a high-street mortgage lender will trust you financially, and securing a mortgage in a traditional manner will be near impossible.

If you require a mortgage while bankruptcy is still on your credit history, you will need to approach a specialist bankruptcy mortgage provider who may be willing to supply the mortgage needed for you to purchase a property.

After six years, bankruptcy will be removed from your credit score. However, getting a mortgage after bankruptcy through conventional means may still be difficult. High street lenders always vet mortgage applicants, and they will ask if you have ever declared bankruptcy. Legally, you must answer truthfully and this will affect their decision to approve or decline a mortgage.

How Does Bankruptcy Affect Mortgages?

If you’ve declared bankruptcy in the past, mortgage providers will automatically assume that you can’t be trusted financially.

We understand that individuals may declare bankruptcy for any number of financial reasons, and sometimes it’s outside of their control. Unfortunately, mortgage lenders will only see the negatives.

What this means for you is that a lender that approves a mortgage will inevitably do so with stricter terms and conditions attached. They do this because they believe they are taking on more risk, and so you will be left with higher interest rates, less space for negotiation and stricter repayment terms.

If you have declared bankruptcy in the past, you can expect any lender to not only ask you this question directly and check your credit rating, but to run more comprehensive financial checks on you. They will want to know every detail about your income, your debts, and your current financial situation, and will be wary of loaning you large sums.

This also means that a lender will demand a larger deposit to secure the mortgage, as this lessens the financial risk on their part. For example, a standard high-street mortgage lender may ask for a 20% deposit on a property. A bankruptcy mortgage lender may ask for 40% or more before they agree to a loan.

To summarise, compared to a conventional mortgage, a bankruptcy mortgage will likely involve:

• More comprehensive financial checks
• Higher interest rates
• Stricter repayment terms and conditions
• A higher deposit

The exact terms and conditions will depend on how long ago you declared bankruptcy and your current financial situation. The more stable you’ve proven yourself to be since the bankruptcy, the more favourable the terms will be.

When Can I Apply for a Mortgage After Bankruptcy?

While you can’t apply for a mortgage as an undischarged bankrupt, there’s technically nothing to stop you from applying as soon as you are discharged. However, this does not mean you will be able to secure a mortgage.

As we have already highlighted, the bankruptcy will remain on your credit report for a further six years after discharge. Apply for a mortgage immediately, even with a specialist bankruptcy mortgage lender, and you will need a large deposit and be able to afford high-interest rates. If you’ve only just been discharged from bankruptcy, it’s unlikely you’ll be able to fulfil these criteria.

Therefore the longer you wait after being discharged, the more likely you are to be in a positive financial situation that mortgage lenders will approve of.

What Can I Do to Improve the Chance of Getting a Mortgage After Bankruptcy?

Getting a mortgage after bankruptcy is a slow process, but with patience and prudent financial planning it’s an achievable long-term goal.

There are a number of steps you can take in the short term to rebuild your credit score and improve your personal financial situation in order to make your position more attractive to mortgage lenders.

Steps you can take towards getting a mortgage after bankruptcy include:

• Ensure any bills, rent and debts are paid on time and in full
• Rebuild your credit rating by applying for and using credit cards
• Begin saving a large deposit for your future property
• Prove that you have a stable and secure income

Ultimately, you need to be patient, slowly rebuild your financial standing and prove that despite your past bankruptcy, you are now financially stable and able to repay the mortgage as per the terms and conditions stipulated by the mortgage lender.

Contact Irwin Insolvency Today If You Need Assistance Getting a Mortgage After Bankruptcy

Securing a bankruptcy mortgage can be difficult, but with the expert advice of an insolvency practitioner it’s far from impossible.

Irwin Insolvency’s experienced advisors can provide personal financial assistance if you need to secure a mortgage after declaring bankruptcy.

Contact our team today to arrange your no-obligation consultation.