What is bankruptcy?
If your debts become unmanageable, one option is to declare yourself bankrupt. It serves to take the pressure off if you are unable to pay off your debts and, after approximately a year, the bankruptcy will be discharged and you will no longer have to pay any of the debts covered by it. It is only one option available to those struggling with debt and has serious consequences, including:
- Having a severely negative effect on your credit score with the main credit reference agencies and impacting on your ability to borrow in the future, including mortgage borrowing
- If you own a home, possibly having to sell it to repay debt
- Having to sell other possessions - including, perhaps, your car - unless they fall into the category of "exempt goods"
- Possibly being forced to close down your business, if you have one
If you decide to declare yourself bankrupt, it costs £680 and will stay on your credit file for six years after it has been discharged. As well as choosing to go bankrupt, you can be forced into bankruptcy by one of your creditors, as long as you owe them more than £5,000.
There is more information and guidance on the Citizens Advice website.
Can you get a mortgage after bankruptcy?
While it won't be possible to get a mortgage before your bankruptcy has been discharged, which is normally after a 12-month period, there are a number of lenders who will consider your application after that time. The general rule of thumb is that most lenders won't give you a mortgage until at least 3 years after your bankruptcy has been discharged and, even then, you can expect to be subject to much stricter eligibility and affordability criteria. If you wait until 6 years have passed and the bankruptcy has been removed from your credit file, you will have more options open to you, although it is likely you will still have to declare that you were bankrupt in the past as part of your mortgage application process.
Although some mainstream lenders will consider applicants who have previously been bankrupt, on a case-by-case basis, you are more likely to be accepted by a specialist lender. However, you can expect to pay a far higher APR, have to contribute a large deposit - anything up to 40% of the property value - and possibly not be given as high income multiples as you would for a standard prime mortgage.
It's a good idea to use a whole-of-market independent mortgage broker to help you navigate through your options, including providing you with access to lenders who can only be accessed through an intermediary. We have vetted the service of online broker Habito*, which has a strong track record of delivering good customer service.
What will lenders be considering if you have previously been bankrupt?
What has your financial behaviour been like since your bankruptcy was discharged?
While it will be clear from the fact that you became bankrupt that you had severe financial difficulties in the past, much of the focus of the application process for a new mortgage will be not only be explaining the circumstances around that, but also demonstrating you have been responsible financially since the bankruptcy was discharged. If you have taken out a lot of new credit agreements, made late payments or missed payments, it is highly unlikely a lender will want to lend to you.
What is your credit score?
Your credit score with the three main credit reference agencies will begin to improve from when your bankruptcy is discharged and will strengthen further when it is removed from your file after 6 years. However, it is not uncommon when you have had a more complex credit history for errors to occur on your file, which could have a negative impact on your credit score. It pays to check your credit rating with Experian, Equifax and TransUnion so you have an idea of your overall score with each of them, as well as ensuring the details around your bankruptcy and any other credit agreements are recorded correctly.
Are you eligible for the mortgage deal?
The lender will look at whether you fit the criteria for the specific mortgage product, not just from the perspective of your bankruptcy, but also in terms of factors such as affordability, the deposit you have available and whether you are looking to take out a joint mortgage with another applicant. In this situation, it is beneficial to work with a good mortgage adviser who is familiar with the market and can identify which products you are likely to be suitable for. They can also communicate with the lender on your behalf, explaining the details of your case and answering any questions they might have.
How to improve your chances of getting accepted for a mortgage after bankruptcy
- Be scrupulous in managing your finances from the moment your bankruptcy is discharged. Ensure you make all payments on time for any remaining debts, mortgage or rent payments and bills, setting up direct debits where possible. Also avoid taking out any unnecessary credit arrangements, such as credit or store cards, keeping your borrowing to a minimum.
- Be realistic about the amount you can afford to borrow, taking into consideration you may have to pay a higher APR. Applying for a smaller mortgage requiring a lower income multiple means you are more likely to be accepted. It will also help if you have a good level of deposit available as this will help counterbalance the risk the lender would have to take on.
- If possible, delay your application for as long as you can to give your credit file a chance to recover. This could open up a greater range of products and help you secure a better deal.
- Take steps to improve your credit score by using a service such as LOQBOX*. Experian Boost can also be used to improve your Experian credit score with a lender. For more guidance, read our article "How to improve your credit score quickly".
Which mortgage lenders accept bankruptcy?
Although there isn't a huge number of lenders who will consider applicants who have previously been bankrupt, they do exist. In the table below we have listed the top-4 lenders for people who have been bankrupt. The assessment is based on the mortgage products they offer, the criteria they will accept and the level of deposit that is required.
| Mortgage lender | Criteria | Maximum LTV |
| Accord Mortgages | Bankruptcy must have been discharged for at least 72 months |
75%-95% depending on property value and type
|
| Darlington Building Society | Bankruptcy must have been discharged a minimum of 36 months ago | 75% |
| MBS Lending | Credit Assist - must have been discharged for at least 12 months
Credit Recovery - bankruptcy must be discharged |
60% |
| Vida Homeloans | Bankruptcy discharged at least 6 years ago | 85% |
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