Mortgage after bankruptcy
Getting a mortgage after bankruptcy can prove to be difficult, with many lenders declining those with any mention of it on their credit file. Although you can’t get a mortgage whilst currently bankrupt, you can apply once your bankruptcy has been discharged.
How soon can I get a mortgage 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 you were discharged, the likelier 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 evidence good money management this figure could drop to 25%. Only when you have been discharged for over 6 years that you may become eligible for 95% mortgages.
How to get a mortgage after bankruptcy
Whilst it can seem a daunting task, 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.
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.
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. This could take months, but more likely years for lenders to consider you for a mortgage and that too could be dependent on your deposit amount.
What can you do?
There are things you can do to give yourself the best chance of being approved for a mortgage after bankruptcy:
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.
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.