Mortgage After Bankruptcy

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Mortgage After Bankruptcy

Diarmiud Phoenix explains how mortgages work after bankruptcy.

Can I get a mortgage after bankruptcy? How long after bankruptcy can you get a mortgage?

It’s always going to be trickier to get any type of finance after bankruptcy, and particularly a mortgage. But it is possible.

To be completely free of any bankruptcy impediment, you would ideally need any defaults or CCJs removed from your credit file. It can take six years for those to disappear.

You need to have been discharged from bankruptcy for 12 months before you can get a mortgage. There are lenders who will consider applications before then, but they’re likely to impose stricter conditions.

What types of mortgage can you apply for after bankruptcy?

Usually we would look towards lenders that have a reputation for lending to people with poor credit history. They often offer mortgages with higher interest rates or with lower Loan to Value ratios.

What that means, in effect, is the borrower will have to come up with higher deposits than those with good credit history.

At the moment in October 2024, lenders like Kensington, Leeds Building Society and Accord are showing an appetite for the ‘subprime’ market. That’s almost a naughty word these days, but it’s certainly not what it was 20 years ago when lending policy criteria was less careful. You could even have described it as reckless.

There’s no danger of going back to those days, thankfully. But there are mortgages available for people after bankruptcy if the right criteria are met.

What eligibility criteria do I need to meet to get a mortgage after bankruptcy?

Even the more flexible lenders will insist that you are at least 12 months out of bankruptcy before you can apply for a mortgage. Some might require that defaulted accounts on your file have passed six years and disappeared off the credit file.

You’ll almost certainly need to demonstrate a more careful and prudent approach to your finances. When people come to us with a chequered past around their credit file, we’re able to tell them how long they need to wait, and what to do in the interim period to get them in a position to apply for a mortgage.

Will I need a larger deposit?

Yes, it’s quite likely. Some lenders view people with former bankruptcies as a higher risk and won’t risk lending a higher percentage of the value of the property compared with someone with a better credit rating.

They may offer a lower Loan to Value ratio – which means you need a higher deposit. In terms of affordability, you might also find you can borrow slightly less being formerly bankrupt. People in that position may have to work a little bit harder, for longer, to buy a property they want.

How much can I borrow?

It will be related to your salary and earnings, less your credit commitments. When lenders carry out credit checks for a Decision in Principle, they may come back with alternative or lower lending amounts for people with lower credit scores due to previous bankruptcy.

As we always say, it’s right to put the checks in first before we make any applications. With certain lenders a Decision in Principle leaves a hard footprint on your credit file. It will show up and negatively impact your score.

But quite a number use a soft footprint, which is fine and doesn’t have that negative impact. It’s better to check these things out first before we make any applications.

How do you apply for a mortgage after bankruptcy?

The first step is to get a credit report. A good advisor will be able to assess that for you and guide you on how to boost your score – or how long you’ll need to wait before applying.

Once you’re in a position to apply, an advisor will source the right lender with the right rates available to someone in your position with previous bankruptcy.

Many people feel their credit history will follow them forever. But we can encourage you and find a way forward for you to become homeowners in the not too distant future.

What else do we need to know about getting a mortgage after bankruptcy?

Just speak to an advisor. I wouldn’t recommend going straight to banks or building societies yourself. You won’t know where to turn and if a couple of lenders decline you, you can become disillusioned. We can cut out all that time and effort – just go to an experienced broker who knows their way around the market.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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