Getting a mortgage if you have been bankrupt

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For some, bankruptcy is like a shadowy spectre, whispered about in corridors. It is to be feared and avoided. ‘Don’t let the bankruptcy ghost get you – you will never get credit again,’ the whispers say.

Of course, that’s not the case, and bankruptcy (though serious) is little more than a temporary condition in the long life of your credit history. While it can cause you problems when it comes to obtaining a mortgage after bankruptcy, there’s plenty that can be done to ensure a successful application.

High street banks and other lenders may turn away someone who has previously been bankrupt without a second thought, especially if the discharge from bankruptcy is recent - but with help from The Mortgage Hut, a specialised lender can be found who will take more care to properly consider the application and make a more informed decision.

Using The Mortgage Hut for help

There’s no denying that you will need expertise in order to get a mortgage with a bankruptcy on your credit file. Our experience and placement in the market gives us a huge advantage to finding the right lender than you would be able to do alone. This article will give you an overview on your options, but we recommend contacting us to discuss the matter personally and we’ll be able to personally assess your situation.

As specialised mortgage advisors, we offer a free no-obligation consultation that’s sure to help you get on track.

Time: the great healer

Bankruptcy is a tool to clear a debts and credit issues from your file and allow you to begin anew. It would be a poor tool if it left you in a position where future loans were denied to you.

However, your credit report needs time to heal. Your official discharge from bankruptcy is typically a year later, but the report will hold onto the details for a further six years.

If you have the patience, then you can simply wait for those years to pass – and you won’t even have to wait the full six, as more lenders will be willing to look at your application for each year that goes past – by the fourth or fifth year, you will probably be considered as viable a borrower as anyone else.

Needing to buy a property sooner however, requires some effort.

Improving your credit score

The first thing that you must do is keep a clean credit record following your discharge. Something as small as a missed payment will be enough to raise concerns among lenders and a CCJ or other serious credit issue on your record after the date of the bankruptcy will be a considerable setback.

Remember, the bankruptcy will mark a clean end to any poor credit that existed before it, so you don’t have to take account of any of it, but post-bankruptcy credit interactions should all be very positive.

Over time your credit score will grow through care and attention.
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Deposits for discharged bankrupts

One method by which any prospective lender is going to be able to mitigate their risk is through the use of increased deposits.

With a clean credit file, lenders are prepared to consider applications from people with deposits as low as 5% of the property market value and after time you will stand on the same ground. Close to the time of your bankruptcy discharge you will be expected to stump up a more substantial initial stake in the property, and you may need to find between 15% and 25% for a deposit.

Depending on your post-bankruptcy finances, this may be close to an impossibility. Again, time plays a key factor here, as every month spent saving further towards the deposit also moves you away from the date of the discharge and lowers the likely size of the required down payment.

As with any mortgage applicant, you are entitled to get your deposit from a source other than purely saving for it over time. A gift from a family member is perfectly legitimate, although it would need to come with a gifted deposit letter – a document to state that the money is not a loan, does not need to be paid back and comes with no interest in the property on the part of the donator.

A further option would be to consider a guaranteed mortgage. A homeowner family member or friend could act as guarantor, securing your mortgage with their own property in lieu of the deposit (or part of it) and giving you the extra boost of their confidence in your financial solvency. Remember, however, if you were to fail to make a mortgage payment at any time, they would be responsible for covering the bill for you, and their house would be at risk alongside yours should you fall behind with repayments.

Preparing for a mortgage application

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The months running up to your mortgage application are very important. You will need to show a clear ability to make the mortgage repayments – something that is seen by lenders as your affordability score.

Affordability is a measure of your free cash at the end of a month, once all your regular outgoings have been paid. If you are living close to the line, desperate for the next pay day to roll around, then your affordability is low.

Strong affordability (which will show if you have been saving significantly for a deposit) is very important in order to obtain the mortgage.

You should also take a proactive role in analysing and improving your credit score. The three main credit reference agencies (Experian, TransUnion and Equifax) all have online portals for viewing your rating and tracking the changes. Use these to make sure there are no nasty surprises coming once you make your application.

Make sure you make no applications for other credit (such as a credit card or overdraft) during the run up to your mortgage application as these will have an adverse affect on your report.

The national hunter database

In rare cases, previously bankrupt mortgage applicants have encountered problems due to a file held with the national hunter database. This database tracks fraud in the UK and, unlike your credit file, isn’t cleared after six years so if your bankruptcy appears on it, then it could present a problem as lenders will check against it.

As with all situations, forewarned is often forearmed. You can make a personal application to the national hunter database to see what is held in your name. It is a longer process than the online portal for credit reference agencies, requiring a paper form to be submitted alongside proof of identity documentation, but you only need to do this once before making your mortgage application.

Speaking to The Mortgage Hut

Remember that we are here to help you throughout the process, but especially once you reach the stage of wanting to make an application! We will work with you to find a suitable lender, obtain an agreement in principle that will help you know that there’s a lender on your side able to work with your bankruptcy in mind, and work with you throughout a final application to give you the best possible chance of acceptance.

Buy-to-let mortgages after bankruptcy

Obtaining a buy-to-let mortgage a year or two following a bankruptcy discharge is going to require specialised help. All of the advice laid out in this article is relevant for buy-to-let mortgages as much as it is for residential mortgages but due to the nature of a buy-to-let mortgage as an investment, lenders are likely to put you under even more scrutiny.

With buy-to-let mortgages typically requiring a 25% deposit as standard, you may find your adverse credit history pushes your application to a 35% deposit or even higher.

At The Mortgage Hut we have specialists who can help. Contact us today if you are considering a buy-to-let property and let us work with you.

Mortgages after bankruptcy – summary list

If you are looking to get a mortgage following your bankruptcy discharge, remember to consider the following:

  • Time – the more distance you can put between you and your bankruptcy, the better.
  • Clean post-bankruptcy credit – make sure you have a perfect credit report following the discharge.
  • Save for a substantial deposit – work with 15% of the property value in mind.
  • Build a strong affordability score – live frugally and show comfortable personal finances.
  • Contact The Mortgage Hut – the earlier you speak to us, the more we can help!

Help and advice from The Mortgage Hut

At The Mortgage Hut we have a team dedicated to bad credit applicants and those affected by poor credit history. Our specialists have built up close relationships with lenders to be able to offer the finest quality advice and match your need up with a mortgage provider that will give your application the credit it deserves. Why not fill in our contact form or call us today to find out more?
Help and advice from The Mortgage Hut

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