Get a Mortgage After Bankruptcy
Mortgage After Bankruptcy
Luke Grosse talks to us about getting a mortgage after bankruptcy.
Can I get a mortgage after bankruptcy, and how long does it take?
Yes, you can absolutely get a mortgage after bankruptcy – you can even do it on day one of being discharged. But in terms of the deposit you’re likely to need, it’s going to be pretty high. It’d probably be like a 30% deposit.
The good news is that the more historical it gets, as the years since you’ve been discharged increase, that will reduce down the deposit requirement and open up more lenders to you.
If it’s day one, you will need a high deposit. Being discharged five years ago is going to open up many more lenders to you. Usually six years is the golden date where you can access the maximum spread of mortgage providers.
What types of mortgage can you apply for after bankruptcy?
Residential mortgages are the most common. If someone does have adverse credit, most of the time they’re going to be looking at purchasing their own property rather than a Buy to Let.
It would potentially be possible to get a Buy to Let property even after bankruptcy, but quite a thin pool of lenders can do that. Plus, with Buy to Let, you already need quite a high deposit.
So a residential mortgage is the most common type. If you’ve just come out of bankruptcy, the lender options will be quite limited, so you might just have to choose whatever products they can offer. You might be limited to fixed rate mortgages, for example.
Once the issue becomes more historic and you open up more lenders, you can potentially look at other products. Tracker or discounted products might become an option, rather than just fixed rate deals.
Eligibility criteria for a mortgage after bankruptcy
If it’s quite recent, there’s a thin pool of specialist lenders, and the criteria will be strict. If they’re considering someone with a bankruptcy, a lender will want everything else to be quite safe.
For example, if you’ve had a recent job change or an unstable employment history, that can really impact things. If you’re still in a probation period, that might be too much risk for a lender on top of the bankruptcy.
But if you’ve been in your job for five years, it’s stable, it’s secure, and you’ve just come out of bankruptcy, that’s a lot safer for them.
The more historical the bankruptcy becomes over time, the more lenders are available and you might get more lenient criteria. It won’t necessarily be the high street lenders, but smaller building societies might consider it, and they may well have less stringent requirements.
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Will I need a larger deposit? How much can I borrow?
Yes, you would need a larger deposit, especially the more recently you were discharged. The more historic it gets, year by year, will reduce the deposit you need.
How much you can borrow varies with every single lender. As a general guide, it’s usually about 4.5 times your income – but all sorts of things come into play. We can run it through with one lender and get one figure, then with another we might get something very different.
Lenders also look at types of income differently. Somebody who’s employed and does quite a bit of overtime, or receives commission or a bonus, for example, could be viewed very differently by each lender.
Some lenders might take 100% of overtime and bonuses, while some might take only 50% – because it might not always be guaranteed.
Also, one thing we see a lot of lenders doing now is that with a five-year fixed deal, you can potentially borrow more [podcast recorded in September 2024].
How do you apply for a mortgage after bankruptcy?
It’s exactly the same as any mortgage application. Quite a few lenders will ask a specific question about bankruptcy.
One thing to get is your discharge paperwork, as credit files can take a little while to update. A bankruptcy might have been registered and still shows as active on your credit file, even though you’ve actually been discharged from it. Lenders might need that paperwork.
How can a broker help with a mortgage after bankruptcy?
Having a past bankruptcy is always going to really limit your mortgage options, so it would be right to speak directly to brokers.
With quite a few high street lenders, if someone’s ever been bankrupt, they unfortunately won’t even consider it. There’s always the chance that a lender doesn’t specifically ask that question during the application process, but they get solicitors to run a check. A mortgage can potentially fall through on that.
That’s the last thing that you want – to think you’ve had an offer and then the lender withdraws it because of bankruptcy. Approaching a broker is always worthwhile, because they should be putting you forward to the most suitable lender for your circumstances.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
