Our guide to mortgages after bankruptcy
Going bankrupt is an official recognition that you are unable to pay your debts. You can declare yourself bankrupt or it is a state of affairs which your creditors may impose on you – whether you like it or not.
As Citizens Advice warns, bankruptcy can have serious consequences – both now and for a long time into the future. Bankruptcy has very considerable impact on your credit rating – and, therefore, your ability to secure any kind of credit in the future, especially a mortgage.
For very good reason, therefore, bankruptcy is often seen as a very last resort to resolving financial problems – you may face a future with seriously limited options when it comes to raising credit or borrowing money.
But those problems may not be insurmountable. With our help here at Needing Advice, we may be able to line you up with mortgage lenders still prepared to advance you a loan even if you have previously been declared bankrupt. Mortgages after bankruptcy are still a possibility.
Can I get a mortgage if I am bankrupt?
The simple answer is no – and there is very good reason for it.
You are usually declared bankrupt for a period of 12 months – though it can be longer – and at the end of that period, you are no longer legally responsible for the debts that brought about your bankruptcy. Officially your bankruptcy has been “discharged”.
Until you have been discharged from bankruptcy, the debt charity Step Change warns that you are unable to arrange more than £500 of credit without informing the lender that you are an undischarged bankrupt. You may face a fine or even imprisonment if you break that law.
Can I get a mortgage after bankruptcy?
By the same logic, though, once you have been discharged from bankruptcy, there is no formal obstacle to your borrowing money or taking on credit once again.
At least, that is the theory. In practice, many lenders avoid any dealings with those who have been bankrupt. Of all the obstacles to getting a mortgage with bad credit, your past bankruptcy is likely to pose the greatest barrier.
Although it is going to be difficult arranging a mortgage if you have been bankrupt, however, that does not mean that it is impossible.
Here at Needing Advice, we continue to help those who have previously been declared bankrupt to secure the mortgage they are seeking.
How can I improve my chances of getting accepted for a mortgage after bankruptcy?
The credit reference agency Experian explains that the record of your bankruptcy remains on your credit file usually for six years or until you are discharged if that is a longer period of time.
Although any mortgage lender may still ask you whether you have ever been bankrupt, it is the record on your credit history file that is most likely to affect your success in securing a mortgage. So, how can you improve your credit rating to bolster your chances of getting a mortgage after bankruptcy?
- you have a statutory right to access the information on your credit file, so order your report now;
- go through it and update all your personal information, including your current address;
- make sure you are on the electoral roll – that is how your identity is often confirmed;
- ensure that the stated credit history is accurate and up to date; and
- consider adding a personal note to explain any particular instances of financial difficulty (periods or illness or unemployment, for example).
In addition to improving your credit score, of course, the bigger the deposit you can show any mortgage lender, the better.
Beware the National Hunter database
National Hunter is an independent, not-for-profit organisation set up to detect and prevent application fraud in financial transactions.
Because the database maintained by National Hunter also contains records of all bankruptcies, mortgage lenders also consult that database – together with the normal credit reference agency checks – when considering a mortgage application.
This twin-track approach to examining your financial affairs, however, may have unfortunate consequences. You might have been discharged from bankruptcy more than six years ago, for example. In that case, your mortgage lender’s search of your regular credit reference agency file showed nothing untoward – and your mortgage application may have been approved in principle accordingly.
On the strength of that approval in principle, you pressed ahead with the proposed purchase of your home and committed to expenses such as survey fees, legal, conveyancing and brokers’ fees.
Following your mortgage lender’s scrutiny of the National Hunter database, however, your historic bankruptcy was noted and the mortgage decision in principle was therefore withdrawn – leaving you seriously out of pocket.
The lesson, therefore, is that even a bankruptcy more than six years ago – which has therefore been wiped from your credit file – may still come back to haunt you and make life difficult when trying to secure a mortgage.
Seeking mortgage advice from a qualified professional before you apply for a mortgage after bankruptcy can help.
What types of mortgage can I get after bankruptcy?
There are mortgage lenders prepared to consider your application for a mortgage – even against your background of past bankruptcy or other bad credit – so you may find that you are eligible for the full range of mortgage products.
Though the terms may be more restrictive than for those with healthier credit scores, you may still qualify for the main types of residential mortgage, buy to let mortgage, or remortgages.
What if I have credit issues after bankruptcy?
Although it is typically regarded as a matter of last resort and carries serious financial consequences, bankruptcy has the distinct advantage of acting to clear all your past debts and wipes your slate clean of records of late payment, County Court judgments (CCJs), or Debt Management Plans.
Theoretically, therefore, bankruptcy has given you the opportunity to effectively reset your credit file and start anew.
The past is still there, of course, so if you get into financial difficulties once again and these play their inevitable part in undermining your credit score, you are likely to find it even more difficult to secure a mortgage.
Probably the most significant – and most public – admission of financial defeat you can make is to enter bankruptcy. Little wonder, then, that future lenders are likely to shy away from your applications for credit of any king, let alone a mortgage.
But there are mortgage lenders still prepared to consider your application even if you have been declared bankrupt in the past – and here at Needing Advice, we can help you find them. To start the ball rolling please just give us a call today on 0800 6123367. We’d be delighted to help.