Mortgages for Discharged Bankrupts

Securing a Home Loan After Bankruptcy

For individuals who have been through bankruptcy, the prospect of securing a mortgage can seem daunting. However, being a discharged bankrupt doesn’t mean the dream of homeownership is out of reach. With the right approach, and working with a experienced bad credit mortgage broker by working with and who understand your situation, you can still qualify for a mortgage after bankruptcy. 

In this article, we’ll explore how discharged bankrupts can apply for a mortgage, what lenders look for, and which lenders  are more willing to offer mortgages for bankrupts.

What Does It Mean to Be a Discharged Bankrupt?

Being discharged from bankruptcy means you are no longer legally required to pay the debts that were included in your bankruptcy. In the UK, bankruptcy typically lasts for 12 months, after which you’re discharged, and your financial situation begins to normalise.

However, the bankruptcy record remains on your credit report for six years from the date it was declared, which can make getting credit, including mortgages, more difficult.

Can You Get a Mortgage After Bankruptcy?

Yes, it is possible to get a mortgage after bankruptcy, but it can be more challenging. Most high street lenders may be reluctant to approve an application from someone who has recently been discharged from bankruptcy. This is because getting a mortgage after bankruptcy is more difficult due to the perceived higher risk associated with applicants who have a history of financial difficulties.

However, some specialist mortgage lenders are more flexible and willing to consider your application, depending on the specifics of your financial situation. All application will be subject to underwriters discretion.

Factors That Affect Your Mortgage Application as a Discharged Bankrupt

When applying for a mortgage after bankruptcy, lenders will evaluate several key factors:

1. Time Since Discharge

The longer it has been since your bankruptcy discharge, the more likely you are to qualify for a mortgage. Many lenders will consider applications from discharged bankrupts after a certain amount of time has passed, typically between 1 and 6 years. Some specialist lenders may offer mortgages even sooner, with a few even willing to consider applications on the first day after a discharge of bankruptcy, but the interest rates will generally be higher.

2. Credit Score

Your credit score will have taken a hit due to the bankruptcy, but demonstrating responsible financial behaviour since discharge can help improve it over time. Lenders will assess your current credit history, including whether you’ve kept up with other credit commitments since your bankruptcy.

Credit Reference Agencies

The most popular credit reference agencies that lenders use are as follows:

Checkmyfile

Experian

Equifax

Transunion

Checkmyfile combines all these credit reports together. This gives a specialist mortgage advisor everything they need to see when looking for potential lenders and finding the right mortgage.

3. Deposit Size

Lenders often require a larger deposit from discharged bankrupts, as this reduces their risk. While a typical mortgage may only require a 5-10% deposit, individuals with bad credit or a bankruptcy may need to provide a deposit of at least 15-25%. A larger deposit can also help you secure a more favourable interest rate.

4. Affordability and Financial Stability

Your income and overall financial stability will be critical in determining whether you qualify for a mortgage. Lenders will closely examine your ability to afford monthly payments, so demonstrating a stable income and controlled outgoings is essential.

Current employment stability is often required by lenders for discharged bankrupts, as it provides assurance of consistent income to meet mortgage obligations.

5. Other Credit Issues

If you have other bad credit history, such as defaults, missed payments, or County Court Judgments (CCJs) since your bankruptcy, it may further impact your chances of approval.

Most mainstream lenders will turn down mortgage applications from discharged bankrupts due to lack of flexibility. However, some lenders will still consider applicants with multiple credit issues if they can show improvements in financial management.

What Do Lenders Look for in a Discharged Bankrupt?

While most high street lenders will be cautious about offering mortgages to discharged bankrupts, there are a number of specialist lenders who understand that past credit issues don’t necessarily indicate current financial irresponsibility.

Here’s what lenders typically look for:

• Time Since Discharge: A minimum of 1 year is often required, but 3-6 years post-bankruptcy offers better chances for approval.

• Financial Conduct: Lenders want to see a clean credit history since your discharge, with no missed payments, defaults, or other credit issues.

• Income Stability: You’ll need to show a steady income and ability to afford the mortgage repayments.

• Equity or Deposit: Lenders will generally require a larger deposit to offset the risk, typically in the range of 15-25%.

High Street Lenders for Discharged Bankrupts

Many high street lenders shy away from offering mortgages to applicants with a history of bankruptcy. Below is a table showing how high street banks treat discharged bankruptcies and their eligibility criteria.

Specialist Lenders for Discharged Bankrupts.

Steps to Improve Your Chances of Getting a Mortgage After Bankruptcy

Here are some tips to help you improve your chances of getting approved for a mortgage after bankruptcy:

1. Check Your Credit Report

Review your credit report to ensure all information is correct. If there are any errors, such as debts that should have been included in your bankruptcy but are still listed, get them corrected. Keeping an eye on your report will also help you understand where you stand with lenders.

2. Improve Your Credit Score

Work on improving your credit rating after your bankruptcy order by paying all bills on time, staying out of further debt, and keeping your credit utilisation low. Over time, these positive habits can help rebuild your credit profile.

3. Save for a Larger Deposit

A larger deposit can significantly increase your chances of getting a mortgage and improve the terms offered to you. Aim for a deposit of at least 15%, but the more you can save, the better your options will be.

4. Consult a Specialist Mortgage Broker

A specialist mortgage broker can help you find the most suitable lenders for your circumstances. They have access to a wider range of lenders, including those that aren’t available on the high street. Brokers can help match you with a lender that is more likely to approve your application.

5. Prepare Financial Documentation

Lenders will want to see evidence of your income and expenditure. Having your documents, such as payslips, bank statements, and other financial records, organised will help smooth the application process and demonstrate your financial stability.

Conclusion

While getting a mortgage after bankruptcy can be challenging, it’s certainly possible with the right approach. Many specialist lenders, such as Pepper Money, Aldermore, and Bluestone Mortgages, offer products specifically designed for discharged bankrupts.

By taking steps to prevent further credit issues and rebuild your credit, saving for a larger deposit, and working with a specialist mortgage broker, you can increase your chances of securing a mortgage after bankruptcy and start your journey towards homeownership.

Remember, patience and careful planning are key. While bankruptcy may have temporarily impacted your finances, it doesn’t have to hold you back from achieving your long-term goals.

Get help from an experienced mortgage broker.

You can speak to one of our specialist mortgage brokers who would be able to guide you through the process. They will advise if there is a lender available and the maximum loan amount based on your circumstances. We are a whole of market mortgage brokerage with access to all lenders. Call us on 01332 470400 or complete the form with your details for us to give you a call back.

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