Mortgages After Bankruptcy

It can be daunting and disheartening to have been declared bankrupt in the past, and you may have deep concerns about the impact on your borrowing in future, even after the bankruptcy has been discharged. Fortunately, the team at IMC Mortgage Brokers have been assisting customers with discharged bankruptcies for many years, and we have a huge amount of experience in advising people in the same situation as you on how to get a mortgage.

Without doubt, a previous bankruptcy will have an impact on any mortgage application, and the majority of mainstream lenders will turn down your application, as they are not geared to offer much flexibility in these circumstances. However, the length of time since your bankruptcy was discharged and any improvements you have brought to your financial situation in the intervening period will have a positive impact on any assessment, and it’s likely that a specialist mortgage lender will be willing to consider offering you a home loan.

We have access to lenders across the UK market, many of whom take a more understanding approach than those on the high street, and who may even be able to offer a mortgage the first day after a discharge of bankruptcy. However, in order to qualify, you should expect to need to provide a larger deposit or to have a reasonable amount of equity already in your current home. To get an accurate idea of your options, please contact us to arrange a no-obligation discussion.

When applying for a mortgage a lender will make an assessment using many factors of your personal circumstances including your past credit history. If a record of a bankruptcy is declared this indicates to the lender that the applicant has historically had debt problems and as such likely to represent a higher risk. When assessing this risk it may be deemed too high for some lenders and as such they will decline an application. You will also likely find that certain borrowing restrictions are imposed upon you during the bankruptcy period. The good news however is that following a discharge from the bankruptcy, that is typically after 12 months, although it will still have an influence over your options it may now be possible to obtain a mortgage.

Many people are, as you would perhaps expect, concerned about getting a mortgage after bankruptcy. It can seem like the black mark on your record will hang over your head forever. The good news is that this is not necessarily true and, whilst it is the case that some lenders – especially those on the high street – will simply decline anyone with a history of bankruptcy, you will still find a fair amount of choice in the market.

The date an applicant’s bankruptcy was discharged will have a lot of bearing on which lenders will be available, with the more historic the adverse event, the better the choice.

At the time of writing, virtually all lenders will consider an application after 6 years – the length of time that bad credit events remain on your financial history anyway – with this length of time also being more than enough for any steps taken to repair your credit score to have had a positive effect. You can also see much choice still available on the market after 3 years, especially from specialist mortgage lenders you won’t find on the high street or online.

There are a few lenders who will look at customers who have been discharged for 12 months, and even on day one, although your options would now be far more limited. You should expect to experience much tighter criteria for the latter, and will likely need to supply a larger than standard deposit, accept a higher interest rate and show that you have taken steps to bring your finances under sound management and rebuild your credit score.

Whilst some lenders in the market will refuse an applicant who has been made bankrupt in the past regardless of the circumstances and time frames involved, the good news is that this does not apply to the whole market. Virtually all lenders will consider an applicant after 6 years of discharge and the following gives an idea of the time frames together with the typical minimum deposit/amount of equity required for some of the high street and many specialist lenders (correct at time of writing).

6 years – 5%

4-5 years – 10% possibly 5%

3-4 years – 15% possibly 5%

2-3 years – 15% deposit

1-2 years – 25% deposit

Day one – 50% deposit

The situation and criteria for obtaining a remortgage on your property is very similar to that with a standard mortgage. Whilst you are in a current bankruptcy, it is extremely unlikely that a mortgage lender will approve your application for a remortgage, and you will unfortunately probably find that certain borrowing restrictions will have been imposed upon you as part of your bankruptcy order.

However, when you are discharged (usually after 12 months, or sometimes later if you have a delayed discharge for any reason), then it may then be possible to remortgage. In fact, at the time of writing there are a few lenders who are willing to grant a mortgage on the first day straight after your discharge, but you should expect this to come with a very large deposit or existing equity requirement, as well as with some fairly strict criteria for approval – usually a proven high personal income, and a much higher interest rate.

After 12 months from discharge, the choice of deals and interest rates available to you tend to become more favourable, with this trend continuing as more time goes by. Usually, you will be able to find mortgages at the typical high street rates and with 5-10% deposits after 3-4 years. As ever, the mortgage market is constantly evolving to meet market needs and reflect current trends in the financial industry, so you be well-advised to check with a specialist mortgage broker to find out the full range of options currently available in your circumstances.

At IMC Mortgage Brokers we get many enquiries from customers asking who the best mortgage lenders are for them as they are discharged bankrupts. Although on the face of it this appears a simple question it does not come with a simple answer. In general terms the best mortgage lenders for discharged bankrupts will be those that offer the potential borrower the most favourable product for their needs at that time. Many factors will therefore have to be taken into consideration that will include the client’s full current and past financial situation into account. The specific focus in regard to the bankruptcy will be when the client was discharged and how much deposit or amount of equity they have. If you are a discharge bankrupt why not get in contact with us today and ask about your possible options.

People may find themselves in a bankrupt position for a number of reasons, and in some cases the best thing would be to find a way to repay your bankruptcy and bankruptcy expenses, to get it cancelled and put you on a clean sheet. This is legally referred to as an annulment, and will return you to the same position financially as you were before the court registered your bankruptcy.

Typically, remortgaging is a good way to raise capital to consolidate your debts, as the interest rates are usually lower than that for personal loans. However, while serving a bankruptcy period, you are likely to have had restrictions placed on your borrowing, so it will be highly unlikely that you will be able to get a new mortgage on your property using a standard mortgage provider, on the high street or otherwise.

However, there could be options available to you through specialist second charge lenders, who do not advertise on the high street or online, and who usually on work through trusted third parties like specialist mortgage or lending advisers. Be aware that interest rates may be quite high, and you will need to have a certain amount of equity already in the property. If successful, this new lending, and keeping up with regular repayments, could improve your credit rating and therefore enable you to transfer to a normal main mortgage in the future, if this is the best thing for your circumstances.

Although this may look like a favourable option, and can be very beneficial for some, please ensure you get professional advice prior to proceeding.

Getting a mortgage after a bankruptcy can seem like an uphill struggle – having a bankruptcy of any description on your credit report will present a red flag to the majority of lenders, and you will be understandably concerned over reactions if you try to apply for a mortgage. This said, while you will not likely be able to obtain a mortgage during a bankruptcy period, there are a few things you can do to improve your chances of getting a mortgage after a discharged bankruptcy.

1. Let time pass. This is obviously very simplistic, but the longer it has been since your bankruptcy was discharged, the more favourably lenders will look at your application. While a few lenders will provide a mortgage under strict criteria and at higher cost straight after the discharge, most will offer far better terms 3 or 4 years down the line, if you have had no further adverse credit events. This will also allow you enough time to rebuild your credit score.

 

2. Take action to improve your credit score. There are a number of ways to remedy your credit score, from closing unused accounts and store cards to correcting errors on your credit reports and taking out a credit card to use for everyday spending, making sure you pay off the balance at the end of the month. Always keep up with any ongoing repayments!

 

3. Pay down your other debts. Or pay them off all together. The fewer financial commitments you have outside of your mortgage payments, the better.

 

4. Show you’re responsible. Get yourself in a position where you have a regular income, and be well-prepared for the application. Documents showing a good understanding of your income, outgoings and budget, will reveal you are able to live within your means and allow for the mortgage payments.

 

5. Raise a sizable deposit. The larger the deposit, the less the perceived risk on the part of the lender. A very large deposit, or reasonable amount of existing equity, goes a long way to offset the impact of a previous bankruptcy.

 

6. Talk to an expert mortgage adviser. People like ourselves here at IMC Mortgage Brokers will be able to advise you on any further actions you can take according to your individual circumstances, and then help you to frame the information in your mortgage application in such a way as to give it the best possible chance of acceptance.

Your mortgage application process could be made a little more difficult after a bankruptcy – mainly due to the adverse event showing up in your credit history and lowering your credit rating, but also because of the impact a bankruptcy can have on your other borrowing and lines of credit. This can in turn have an effect on getting a mortgage.

During a bankruptcy, you will be restricted from taking out many forms of borrowing, and in effect most lines of credit are withdrawn, including mortgages. After a bankruptcy has been discharged, if you are trying to obtain a business loan or other type of credit without showing that you have taken measures to put yourself on a secure financial footing and reduce the perceived risk to the lender, you may also be turned down. A string of declined loan applications on your credit history is then likely to harm your credit rating even further, having a negative impact on any future mortgage applications.

A bankruptcy can remain on your financial records for up to ten years, depending on the type of bankruptcy it was and if you paid it off. Fortunately, the impact of a bankruptcy lessens over time, and if it was dealt with properly then it will drop off your credit history after six years, just like any other adverse credit issues.

If, however, you find yourself facing further credit issues after the bankruptcy was discharged, like defaults, CCJs or IVAs, then this could have a serious impact on your ability to get a mortgage, as lenders will want to see an impeccable credit report in the time following a bankruptcy. Hope is not entirely lost, as there will still be lenders who may grant you a mortgage, but it will be vital for you to get expert help from an experienced mortgage broker to ensure success.

If you have had no further bad credit issues following the bankruptcy discharge, have taken steps to repair your credit rating and can show you are dealing competently with your day-to-day finances, then you should find things are a lot easier after a year has passed. You could be offered standard interest rates by a number of lenders after 3 or 4 years, although the high street banks may still hesitate to offer you a mortgage.

Here we are dealing with two specialist fields in mortgage services coming together: getting a mortgage for a buy-to-let property and obtaining a mortgage following a bankruptcy. However, this does not mean that you will be facing twice the problems – in fact, the process could be made all the more smoother because you will almost certainly need to work through an expert mortgage adviser to obtain your mortgage.

A Buy-To-Let mortgage is closer to a business deal than a standard mortgage. Your personal income, while still relevant, will matter less than the anticipated revenue from rent that you can expect from the property. If you can show that the incoming rent from tenants will cover your mortgage, plus any fees, maintenance costs and contingency plan in case the property stands vacant for a period (plus a profit, of course), then the lender is likely to look favourably on your application, especially if you have had an exemplary credit record since the discharge of your bankruptcy.

An expert mortgage advisor, such as a member of our team here at IMC Mortgage Brokers, knows the mortgage market inside out and can dramatically improve your chances of getting a mortgage in these cases. They’ll be familiar with the varying criteria and terms of a very wide range of mortgage providers (both mainstream and specialist), and will have established relationships with lenders that will ensure your case has the best possible chances of success. In fact, they can even check informally with some lenders in advance to see if your needs and circumstances can be met.

Give us a call or drop us a line today to arrange a free, no-strings chat and find out your options.

The phrase specialist mortgage broker can encompass a multitude of meanings however in simple terms this best describes a mortgage adviser that predominantly focuses on one specific aspect within the market. This could be in relation to bad credit mortgages or limited company buy to lets to name but two. By dealing with a specialist mortgage broker you should be safe in the knowledge that as this is their area of expertise, that they will be best placed to assist you in regard to your borrowing needs. At IMC Mortgage Brokers we look to have teams of specialist advisers who focus on their respective areas and who also have the support of other team members who specialise in their areas to assist in any cross over business thus ensuring expertise is at hand regardless of a customer’s requirements.