Can You Get a Mortgage After Bankruptcy?

The idea of homeownership after a bankruptcy is daunting and can sometimes feel impossible, but it isn’t. While bankruptcy impacts your ability to secure a mortgage, there are people who successfully obtain one after being discharged, showing that while there may be more conditions and restrictions, it isn’t impossible.

Let’s explore the question ‘can a bankrupt get a mortgage?’ and look at when and how to get you back on the property ladder.

How Soon Can You Get a Mortgage After Bankruptcy?

There are two things to bear in mind when you’re thinking can a bankrupt get a mortgage. First, you should be aware that most lenders require you to wait until your bankruptcy has been removed from your credit record – typically six years from the date of your bankruptcy order.

Most lenders consider lending to bankrupts using these key timeframes:

• Immediate post-discharge: Very limited options
• 3-4 years post-discharge: Some specialist lenders may consider your application
• 6+ years (after bankruptcy drops off your credit file): Most mainstream lenders become accessible

Secondly, you’ll be required to pay a higher deposit than someone who hasn’t been bankrupt because you’re considered a higher risk borrower by lenders due to your previous financial difficulties. This increased risk assessment means lenders need more security in the form of a larger deposit to protect their investment.

• Less than a year after discharge: 40% deposit required
• One year after discharge: 25-30% deposit
• Two years after discharge: 15-20% deposit
• Three years or more: 5-10% deposit

For perspective, on a £250,000 property, this means you could need anything from £100,000 down to £12,500 as a deposit, plus moving costs and stamp duty.

Will I Have to Pay Higher Interest Rates on My Mortgage?

Yes, you will typically face higher interest rates on your mortgage after bankruptcy, but rest assured, this isn’t a permanent situation.

If you manage to find which mortgage lenders accept bankrupts, you can expect higher interest rates for two main reasons. First, they’re taking on more risk by lending to someone with a history of bankruptcy. Secondly, there are fewer lenders willing to offer mortgages to discharged bankrupts, which means less competition to drive rates down.

However, this can improve over time. If you consistently meet your mortgage payments and manage your finances well, you’ll gradually rebuild your credit rating and after a period of proven reliability you might be able to remortgage with a mainstream lender offering more competitive rates.

Which Lenders Accept Discharged Bankrupts?

As we’ve mentioned above, if you’ve just recently been discharged or are still having bankrupt status on your credit file, your options of lenders will be very limited.

Search for which mortgage lenders accept bankrupts and you’ll come up with a handful of specialist lenders that have a history of accepting applicants with bankruptcy on their credit file, including Pepper Money, Bluestone Mortgages, Aldermore, and West Bromwich Building Society.

If it’s been 6 years or over and the bankruptcy has been dropped from your file, most major banks will consider giving you a mortgage for homeownership. Still, there are never guarantees of securing a mortgage regardless of how long ago the bankruptcy was dropped, as these lenders will scrutinise your record before deciding on your eligibility.

How to Improve Your Chances of Getting a Mortgage?

There are several key steps you can take to enhance your mortgage prospects after bankruptcy.

Most importantly, building a solid track record of financial management following your discharge. This demonstrates to lenders financial responsibility, that you’ve learned from past experiences and can now handle credit responsibly. You’ll also need to focus on saving for a substantial deposit, as this not only shows financial discipline but also reduces the lender’s risk when offering you a mortgage. Stable, long-term employment is equally important, as it provides security and reassurance to lenders about your ability to meet mortgage payments.

Remember to ensure that you’re enrolled on the electoral roll. This doesn’t affect your financial status, but it helps verify your identity and current address, which is essential for credit applications.

Additionally, ensure you keep up with all existing financial commitments. Whether it’s utility bills or phone contracts, they are all taken into consideration and help build a positive credit profile.

While considering ‘can a bankrupt get a mortgage’ might put a lot of people in a spin, it really isn’t that complicated. All it requires is patience and careful planning. Focus on rebuilding your financial health, save diligently for your deposit, and work with professionals who understand your situation. Remember, every year that passes since your discharge improves your chances of securing a mortgage on better terms.

Need professional advice about bankruptcy? Reach out to our team of licensed insolvency practitioners who can provide personalised guidance based on your specific situation.

Our experts can help you answer everything you need to know about mortgages and help you find out the next best step if you’re looking to move into home ownership.