Bankruptcy can give you some much-needed relief from the people you owe money to and write off your unaffordable debt, giving you a fresh financial start. However, it can have a lasting impact on your finances, making it difficult to qualify for many types of credit, including a mortgage.
The good news is, while it’s challenging to get a mortgage after bankruptcy, it’s not impossible. From waiting until your credit is repaired to using a mortgage broker, there are various things you can do to improve your chances of approval.
How will bankruptcy affect me?
Bankruptcy is a legal way to write off the debts you can’t afford to pay, but it can affect your life in many ways. Here are some of the things bankruptcy can impact:
Your credit score
From the moment your bankruptcy order is made, it will be added to your credit report for six years. During this time, your credit score will be damaged and lenders will be able to see that you’re bankrupt.
Most lenders will automatically reject your application if bankruptcy is still on your credit record as it indicates that you’ve recently struggled with debt and might find it difficult to afford another credit agreement.
Your home
The impact of bankruptcy on your home depends on whether you own or rent your property. Some landlords have bankruptcy clauses that allow them to end your tenancy if you become bankrupt, but you should be able to continue living in the property as long as you keep up with your rent and bills.
However, homeowners are at greater risk during bankruptcy as you’ll need to hand over your home to your trustee. They can then sell it to recover the money owed if it has enough equity.
Your job
In most cases, your employer won’t be informed of your bankruptcy and you should be able to continue working as normal. However, your role may be affected if you work in certain industries, such as law and financial services, or you’re self-employed.
It might also be difficult to find a job with certain organisations like the police or the government while your bankruptcy is still visible on your credit report.
Your car
Like your home, your car might also be at risk when you go bankrupt. The only way you’ll be allowed to keep your vehicle is if it’s worth less than a certain value or if it’s essential for work or care purposes.
Whether you’ll be able to keep your hire purchase vehicle depends on your individual agreement. Some lenders will automatically end the agreement when you become bankrupt while others may let you keep paying for it if it’s essential.
How much debt do you have?
Can you get a mortgage after bankruptcy?
It’s certainly possible to get a mortgage after bankruptcy, but you should expect the process to be longer and more complicated – especially if the bankruptcy was recent.
Most lenders will avoid lending to you if it’s been less than 12 months since you were discharged from bankruptcy as it’s unlikely that your finances will have had enough time to recover, but lenders will consider various aspects of your financial situation when assessing you for a mortgage. They will mainly focus on how long it’s been since you were discharged and how you’ve managed credit since.
However, you may have more luck with specialist mortgage lenders. They specialise in lending to individuals with poor credit ratings due to missed payments and debt and, as a result, tend to be more flexible in the types of mortgages they offer.
In the US, specialist mortgages are known as FHA or VA loans. A VA or FHA loan works in the same way as a specialist mortgage in the UK in that they both allow you to access mortgage deals that perhaps wouldn’t be available to you with a standard lender.
Even if you get approved for a mortgage after bankruptcy, you’ll likely face higher interest rates, a larger deposit, and stricter terms. This is to cover the lender in the event you default on your repayments as you’ll be viewed as high-risk.
How soon after bankruptcy can I get a mortgage?
There is no set amount of time you must wait before you can officially qualify for a mortgage. Technically, there is nothing stopping you from applying for bankruptcy as soon as you’re discharged.
However, the longer you wait to apply for a mortgage, the better your chances of getting approved. It’s recommended to wait as long as you can after bankruptcy before applying for a mortgage to give your credit score enough time to recover.
During this time, take as many measures as you can to improve your credit score. Making an effort to boost your creditworthiness will show lenders that you’re committed to improving your financial situation and can be trusted with a mortgage.
Generally, almost every lender will consider a mortgage application if six or more years have passed since the bankruptcy discharge. After this time, the bankruptcy won’t be visible on your credit report and lenders won’t know you were bankrupt.
Here is a rough guide to how much you’ll be expected to put down as a deposit based on how long it has been since you were discharged from your bankruptcy:
| Time since discharge | Typical deposit required |
| 1 year or less | 30-40% |
| 2 years | 20-30% |
| 3 years | 15-20% |
| 4-6 years | 10-15% |
| 6 years or more | 5-10% |
Will I always have to pay a higher interest rate on my mortgage after bankruptcy?
Not necessarily. As previously mentioned, most lenders will apply higher interest rates to your mortgage if you’ve had a recent bankruptcy. This is to give them peace of mind in the event you don’t make your mortgage payments.
However, while the interest rate will initially be high if you’ve only recently been discharged, it won’t necessarily stay high for the full duration of your mortgage term.
Essentially, as long as you continue to make your repayments with a specialist lender as agreed, your credit score should increase over time. This means that, after a few years, you might be able to remortgage with a standard lender and access more competitive rates.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
Tips for getting a mortgage after bankruptcy
Getting a mortgage after bankruptcy will be challenging, but there are some things you can do to improve your chances.
Here are the steps you should take when you apply for a mortgage post-bankruptcy:
Take your time
Unless there’s an immediate need to get a mortgage, it’s recommended to wait a few years or at least until your credit score has recovered. The longer you wait to apply, the more attractive your application will look to lenders.
This will prevent you from paying a larger deposit and being saddled with a higher interest rate.
Improve your credit score
Working on your credit score can help you gradually undo some of the damage done by bankruptcy. To do this, register on the electoral roll, pay your bills on time, and correct errors on your credit file.
It can be difficult to know what credit score to aim for – especially if you’ve never checked your credit score before – but any progress is better than no progress at all.
Contact a mortgage broker
Navigating the mortgage process after bankruptcy can be difficult, but a mortgage broker can assist you and help you know what your next steps should be.
They will use their knowledge and experience of the housing market to review your financial situation and advise on the best possible options for your circumstances.
Save for a bigger deposit
If you have anything that could potentially make it difficult to get a mortgage, it’s wise to save for a bigger deposit.
By saving for a bigger deposit, you’re essentially asking to borrow less from the lender. This also opens you up to better interest rates and a better mortgage deal as the lender won’t be taking such a big risk.
Pay down other debts
Applying for a mortgage with a bankruptcy on your credit file will always be difficult. However, the more you can show that you’re a responsible borrower, the better your chances of being approved.
By dealing with all of your other commitments outside of your mortgage, lenders might be more willing to approve your application, although this will likely still be at a higher interest rate.
Do I have to declare bankruptcy after six years?
Bankruptcy will stay on your credit file and affect your credit score for six years. During this time, lenders will likely reject your application.
However, while you’ll find it easier to get a mortgage as soon as your bankruptcy is removed from your credit file, this won’t happen overnight.
Most mortgage lenders will ask if you’ve ever been declared bankrupt, which you must answer honestly even if it’s been more than six years since you were discharged and all evidence of it has been removed from your credit file.
Purposely lying or omitting key information, such as bankruptcy, from your mortgage application is considered fraud and could result in you being served with a fine or a suspended sentence.
It’s also important to check your bankruptcy has been removed from your credit report after six years. Checking your own credit file will only trigger a soft credit enquiry, which means it won’t be noted on your credit file and won’t affect your credit score in any way.
What is the minimum credit score for a mortgage?
There isn’t a universally agreed credit score you need to qualify for a mortgage. Generally, the higher your credit score, the better your chances of approval.
The credit score you’ll need to qualify for a mortgage also differs between lenders as their approach to risk varies significantly – especially between standard and specialist lenders.
When you apply for a mortgage, lenders look at various aspects of your finances to determine whether you’re a suitable candidate. They will be assessing whether they think you’re worth taking a risk on or if the chance of you defaulting on your payments is too high.
Most lenders assess your debt to income ratio, which is essentially how much of your monthly income you spend on debt repayment.
However, it can be useful to know how each credit reference agency views credit scores to give you a rough indication of what number to aim for:
| Very poor | Poor | Fair | Good | Very good | Excellent | |
| Experian | 0-560 | 561-720 | 721-880 | 881-960 | 961-999 | |
| Equifax | 0-438 | 439-530 | 531-670 | 671-810 | 811-1000 | |
| TransUnion | 0-550 | 551-565 | 566-603 | 604-627 | 628-710 |
Can I remortgage after bankruptcy?
The criteria for remortgaging after bankruptcy is largely the same as getting a mortgage after bankruptcy. Put simply, as long as the bankruptcy is recent, you’ll struggle to find a lender willing to consider your mortgage application.
However, once you’ve been discharged from bankruptcy, you might be able to remortgage with restrictions. Certain lenders may be willing to approve your mortgage the day after you’re discharged, but you’ll likely still need a sizable deposit or substantial equity in your property to be able to do so.
Remember, if you can wait until 12 months after your bankruptcy discharge to apply with a specialist lender, the options available to you will significantly improve. For a standard lender, you might need to wait as long as three to four years after your discharge date to secure a mortgage.
Debt help tailored to you
From writing off a large portion of your debt, to readjusting your budget, we’ll find a solution that suits you.
Can I remortgage to pay off my bankruptcy?
Remortgaging can seem like an effective way to pay off your bankruptcy by converting your equity into cash and using the funds to repay your debts. However, it’s not quite as straightforward as this.
Remember, your ability to get credit during bankruptcy – and even in the months following bankruptcy – will be severely restricted. Because of this, you’ll find it extremely challenging to find a lender willing to even consider your remortgage application.
Usually, your best chance at remortgaging to pay off your bankruptcy is to apply through a specialist lender or broker. However, they’ll likely apply high fees and interest rates.
Having a bankruptcy on your credit file will automatically make it difficult to get a mortgage or remortgage for six years. Unless you have a minimum of 50% equity in your home, you should expect the process to be challenging and take some time.
Conclusion
Bankruptcy will damage your credit score and make it difficult to qualify for a mortgage, but it certainly isn’t impossible. In fact, certain mortgage lenders specialise in ‘bad credit mortgages’ for individuals with a poor credit history due to bankruptcy or other debt problems.
If you can, it’s worth waiting until your bankruptcy has been removed from your credit report before applying for a mortgage. This will give you time to rebuild your credit score and boost your chances of approval.
Talking to a mortgage advisor can help you know how to navigate the mortgage process after bankruptcy. They will review your financial situation and let you know what your options are.
