Getting a Mortgage After Bankruptcy

The main things lenders want to know

There are 3 main factors lenders are looking at when assessing if they’ll lend to you after bankruptcy:

Length of time

How long you’ve been discharged generally determines the lenders you can access – the more time since the bankruptcy, where you’ve not had any further credit issues (and in fact if you can borrow a bit and conduct accounts well), it will start to evidence you are now a safer bet.

Of course, it’s considered a greater risk to lend to someone who has just gone bankrupt than to someone who has shown they are now able to borrow and repay consistently. So mortgages are usually higher rate and demand higher deposits the closer they are to the discharge date, it stands then that there would be far fewer lenders willing to take on this risk.

That said, there are some who will lend from day 1 of discharge!

Reasons for Bankruptcy

It might not seem relevant to some, but lenders generally want to understand the circumstances that led to your bankruptcy. More often than not, it was a certain “life-event” that spiralled, such as an illness keeping you off work, a redundancy, or a bereavement in the family; lenders are generally fine with these.

One reason lenders don’t tend to like you (and it reduces the number who’ll consider you) is for tax reasons. If you had a business or personal debt with HMRC and they enforced bankruptcy, this can be a blocker for many lenders. Especially if you are now self-employed again, doing the same thing, with your income dependent on that line of work being sustainable.

They are looking for the likelihood of it happening again, so if there was no real reason, it might be harder to justify to an underwriter (the decision maker).

Have you had any credit issues since?

Whilst the lenders that consider the bankruptcy are more flexible, if you’ve also had some issues since, it can be a real blocker for some of them (depending on why and what they are). It’s by no means a definite no, but they’ll want to get comfortable with why, and be happy you’re going to repay the mortgage if they offer it.

The Actual Process

You can get a mortgage in 2 ways – through a broker or direct to the lender.

You may have figured out already that standard mortgage comparison tables are relatively useless – where can you apply the filters you need to see only the lenders that will consider you?

This is why we built the OMA® Engine. You can smart-compare deals and add these filters! But even then, no tool is going to get you approved and factor in your full scenario, and it won’t replace great advice.

With over 100 lenders in the market and all of them having different policies when it comes to bankruptcy, finding the ones that fit you is going to be a full-time job. Not all lenders publish their policy

So the process is largely the same if you try and do this alone or a broker does it for you:

1. Find out where you are: Get a full understanding and documents for evidence. This is best done with your credit reports (we like Checkmyfile) to ensure the bankruptcy dates are showing (public record section) and that all debts are included and appearing on your report in alignment (if not, you could get declined as a lender thinks you have a bankruptcy AND extra defaults. We have seen this happen a lot).
2. Shortlist lenders that can accept: Based on your situation, check your discharge date and reason for bankruptcy against the lender’s policy. Good luck! This is a big job, and the answers are not always out there!
3. Check affordability & everything else: From the lenders who’ll consider you, check they’ll lend what you need (they should have an affordability calculator for this, but not always), and that your income, deposit, age, mortgage type, and the property are all acceptable.
4. Agreement In Principle (AIP): Make an initial application. If you got steps 2 and 3 right, then this should approve, although not always, sometimes you’ve missed something or if they are a lender that credit scores (not all do), it might be you didn’t pass. Be VERY CAREFUL about making any more applications if this happens, too many in a short time can harm your chances of even a willing lender approving you.
5. Full application: When you’re actually ready to go and proceed with the mortgage (i.e. offer accepted to buy or you are ready to remortgage), you need to complete the application – property info, solicitor info, etc. The lender then usually instructs a surveyor, and they then process the documentation. This can be automated, semi-automated, or manual (human underwriter), depending on the lender. Chances are, yours will be more manual, especially if you have a recent bankruptcy.
6. Formal Mortgage Offer: Celebrate and relax, it’s in! This is the lender saying they are happy with you, your documentation, and the property. It’s then a case of the solicitors notifying for completion, and it should be good to go.

Deposit required

The deposit required depends on multiple factors, but largely the date of discharge. The more recent the bankruptcy, the larger the deposit.

Why you need an expert

This is why we’re here!

There are generalists and specialists. Think of it a bit like your GP doctor. They’re great with most simple things, but will refer you to a surgeon when you need an operation. Mortgages are much the same.

As with any profession, there’s also a wide range of experience between advisors—some are new to the industry or new to the customer types (i.e., they don’t help many bad credit customers), and as you would expect, the best outcomes are reached through the most experienced advisors.

That’s exactly why we work in focused departments, and have Channel-Experts who are already incredibly experienced and successfully arrange the type of mortgage you need every day.

👉🏼 Read more about channel expertise here.

This explains it pretty well, but what better way to showcase than with a great case study below!

Mortgage lenders available

There are 100+ lenders in the market, and there are currently plenty of lenders who specialise in helping people who have filed for bankruptcy in the past.

The following links show you the relevant comparison table of these in our very own (and amazing!) smart comparison tool, powered by the OMA®Engine:

Around 70+ lenders are happy to consider if discharged over 6 years, 43+ lenders if between 3-6 years ago, 38+ lenders if 0-3 years, and if you have only just been discharged, there are 4+ lenders for you.

Here are a few examples of mortgage lenders who accept applications from bankrupt borrowers. As mentioned, many of these are broker-only lenders, especially for more recent bankruptcies:

• Bluestone
• Vida Home Loans
• Pepper Money
• MBS
• Saffron
• Foundation
• Norton

Rates for mortgages after bankruptcy

The rates are way more competitive than you might think, especially for those discharged over 3 years. Check the comparison table for more info, and feel free to play around with the filters to find the right one for you.

Remember, though, that these are just indications. To know which lenders will actually approve you, you will likely need some expert input.

Bankruptcy Mortgage Calculator

You’ve probably found comparison tables useless, and maybe the odd quick form thing that promises to calculate but is actually just a way to get your contact info and surprise you with a phone call from a broker. How do we know? We used to do this!

Ultimately, no one calculator online or otherwise (not even one that brokers or lenders have access to) shows you exactly who and what you qualify for.

We have arguably the BEST version possible and we don’t even guarantee it. Why? Because mortgages are a bit more complex than a form can capture to give accurate results, and because lender policy is not straightforward or transparent most of the time.

That said, our tool is awesome! We built it ourselves, and it’s a unique service for customers to use to give an idea of what might be possible for you.

Get started with it here to calculate your deposit and repayments from lenders who accept bankruptcy at different times after discharge (update and add filters to make changes to this).

What is a Bankruptcy and How does it impact mortgages?

The Definition

A bankruptcy (or sequestration in Scotland) allows someone who can’t repay their debts, to essentially write them off.

It could be an individual or a company, and is either voluntarily started or enforced through a petition of your lenders/providers. For them to do this, you must owe at least £5,000, but it’s not commonly enforced at this level.

The Process

The Debtor (borrower) applies online or is forced through a court petition, and is reviewed by an Official Receiver (or court), at which point a bankruptcy order is made. A trustee then takes control of any assets the borrower owns, such as property, cars, or anything of significant resale value, which are then sold to repay as much of the debts as possible.

The borrower is then unable to borrow or enter into any new agreement for at least 12 months, after which they are considered “discharged” and the debts are wiped off.

The Impact on new mortgages

People who have been bankrupt are obliged to disclose this indefinitely on new applications for credit – this can then mean new lenders will decline even if you have a good credit score down the line. That said, as we show in the comparison, there are plenty of mortgage lenders willing to consider you post-discharge, and the longer time passes, the more lenders will consider you, and the better chance you have of a decent rate – some really competitive deals are available, especially 3 years after discharge.

Impact on different mortgage types

In general, there’s no real difference between lenders offering bankruptcy mortgages for first-time buyers, home movers, and remortgages—the terms and restrictions tend to apply to each type.

Of course, if you have a lot of equity, it helps you refinance onto the better deals, whereas first-time buyers, on average, may not have the same deposit, so they tend to have a higher loan-to-value (LTV), which can make it trickier.

Buy to let after bankruptcy

The lenders that offer buy-to-let mortgages are different from those that offer main residential mortgages (many do both, but some only do buy-to-lets), and there is a decent range of options for buy-to-lets.

Can you apply for government home ownership schemes?

If you have been through a bankruptcy process, this won’t necessarily disqualify you from government home ownership schemes such as Shared Ownership, Right to Buy, and the First Homes Scheme.

For most of these schemes, credit checks aren’t used. But you’d still need to qualify for a mortgage to be a suitable candidate for a government-backed home ownership scheme.

Second charge mortgages after bankruptcy

You might be surprised, actually. There’s a wide range of second-charge (secured loan) lenders, and these are often different from the range of lenders offering standard first-charge (main residential) mortgages.

Second-charge lenders tend to be more flexible regarding credit history, affordability, and terms, so it may often be possible to do something even if all the first-charge lenders have said no.

Tips for rebuilding and repairing your credit

One of the best things you can do after bankruptcy is work on rebuilding your credit.

This can be a great tactic to use while you’re waiting to become eligible for more mortgage deals; here are a few ways you can do this:

• Ensure you’re not making any late payments by paying any bills on time and in full
• Keep your reliance on credit at a manageable level
• Avoid using unplanned overdraft services with your bank
• Register to vote on the electoral roll

One of the easiest ways to see where improvements can be made is to download all your credit reports. Then, get your broker to go through the results with you to help you understand them, spot mistakes, or evaluate areas you should focus on improving.

When a Bankruptcy is actually a good idea

In most instances, bankruptcy is a last resort. If you have no clear way forward and are unable to support the debt and still meet a basic cost of living, and can’t find a way to repay your debts, bankruptcy may be the only option.

Sometimes, debt advice agencies recommend alternative options such as debt management or IVAs, which, of course, have their place, but we can’t advise on these.

What we can say is, when it comes to mortgages, whilst a bankruptcy is a reset and major life event, and not taken lightly by lenders, there are actually a great number of lenders willing to consider you within a relatively short space of time.

In fact, sometimes you’re eligible sooner with more lenders at better rates than if you had taken a lengthy IVA.