At Just Mortgage Brokers we are regularly approached by customers who are ex-bankrupts and are now looking to buy a property or apply for a remortgage and concerned about bad credit rating. On many occasions, this is after being turned down by a high street lender, and they are understandably concerned that they will not be able to obtain an affordable mortgage.
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As specialists with unlimited access to the mortgage market, we know exactly which lenders may consider their application, and will look to help them secure a bad credit mortgage with a discharged bankruptcy at a competitive rate.
Bankruptcy is an event that has a huge impact on people’s lives, both as it is being set in motion and for a time afterwards. It is not the end of a person’s ability to obtain credit, however, and in many cases it will be possible to obtain a bankruptcy mortgage.
It helps to understand the process.
Can I get a bad credit mortgage?
The Bankruptcy Process
Bankruptcy is a form of individual insolvency for those who are simply unable to repay their debts in a reasonable time. An individual may apply for their own bankruptcy, or else be forced into it by a creditor or creditors. (For a creditor to make a person bankrupt, they must be owed at least £5,000.)
Bankruptcy petitions are no longer made via the courts; as of 2016, applications are made online via a government website. Once a submission has been made (and paid for) adjudication is received within 28 days.
In the case of voluntary bankruptcy, it should be thought of as a last resort and only used by people who have no money, or too little money, with which to cover their unsecured debts, and no way of raising finance. If someone is considering bankruptcy, it is important they speak to a professional adviser.
Once an individual has been made bankrupt their bank account(s) will be frozen and any assets, such as a car, property, or any luxury items, are likely to be sold off and the proceeds distributed equally between creditors. On the plus side, those creditors may no longer pursue them for payment. (If the value of the assets is greater than the value of the debts, and the individual can afford to keep up with all their other payments, it may be unlikely that bankruptcy is the right option for them.)
Not all debts can be incorporated in a bankruptcy; those that cannot be incorporated include, but are not limited to, student loans, maintenance payments, and secured debts. These will still have to be paid.
For the period for which the bankruptcy lasts, an individual will be subject to a number of restrictions which can make life very difficult. For example, they cannot apply for any form of credit greater than £500 without declaring that they are bankrupt. Any changes in circumstances during this time must be declared to the Official Receiver. The Official Receiver will also investigate the person’s spending over the previous five years.
Bankruptcies usually last for a period of twelve months. When the bankruptcy period is up, the individual will be notified and officially discharged by the Official Receiver, and the remainder of the unsecured debt will be written off.
Disadvantages of Bankruptcy
While having their unsecured debts written off will allow someone to make a fresh start, there are some serious disadvantages.
The details of everyone who is made bankrupt – including name, date of birth and full address – are entered on to the Insolvency Register and will generally remain there until three months after they have been discharged. The register is available online and free to search.
For the period of the bankruptcy, it can be difficult to open a bank account (remember, the old account(s) will have been frozen) or to get insurance.
Even after a bankrupt has been discharged, it may be difficult to get a loan or a credit card – and they may not be offered the best rates. In fact, they are typically likely to find it extremely difficult to source credit for a minimum of six years from the date of the bankruptcy order.
How Long Does a Bankruptcy Last on Credit Record?
A bankruptcy order shows on your credit report for a minimum of six years from the date of the bankruptcy order (the date you are made bankrupt). So, even after you have been discharged, the bankruptcy will still be on your credit report for (usually) a further five years. Indeed, for mortgages, some lenders will ask about bankruptcy regardless of the time of the event.
The Impact on Your Credit Score
One of the biggest fears people have when filing for bankruptcy is the lasting impact it has on their credit score.
Even after the bankruptcy has been discharged, it may still be difficult to obtain affordable credit for a period of time due to the damage that has been done to your credit profile. If you do manage to source credit, it is possible that you may continue to be charged a higher rate of interest thanks to the greater risk you are perceived to present. However, some mainstream mortgage providers start to become much more flexible after a period of time has passed following discharge, although the time involved varies depending on each individual lender’s criteria.
Can I Get a Mortgage After Bankruptcy?
The short answer is that yes, you can. In our own research conducted into how long people thought it would take for them to get a mortgage after they had any ‘black marks’ added to their credit history, nearly 70% of people thought their circumstances were far worse than they actually were! The good news is that this means we are much more likely than you might expect to be able to find a mortgage for you, whether you are an ex-bankrupt or not.
With regard to how soon you become eligible to apply for a mortgage after you have been discharged, that depends on each individual lender. What you can be sure of is that the longer you leave it, the more options you will have available to you. Also, the earlier your application, the more stringent will be the criteria you have to meet, the more expensive will be the interest rate and fees, and the lower will be the loan-to–value ratio. However, no matter what stage you are at, we can advise you with regard to gaining a discharged bankruptcy mortgage.
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Stacking the Odds in Your Favour
If you are looking for a bad credit mortgage with a bankruptcy, there are a number of things you can do to give yourself the very best chance of not only accessing a mortgage, but finding one at the best possible rate.
Contact a Specialist
Your best chance of finding a bad credit mortgage with a bankruptcy is to contact a specialist broker. Bad credit mortgage brokers understand this market inside out and work with a network of lenders that specialise in exactly this type of finance. A broker with unlimited access to the market is your best bet, as they will be able to canvass a wide range of lenders to find a mortgage that meets your particular circumstances. They can also help you with your mortgage application and provide personalised mortgage advice.
Check Your Credit Report
When you apply for a mortgage, the lender will take a look at your credit report to assess your creditworthiness. If you are a discharged bankrupt, there is a possibility that your credit report could contain some inaccuracies which could cause a lender to decline your application. For example, there may be anomalies with regard to the bankruptcy discharge date, or old credit accounts might not have been marked as settled.
You can order your credit reports from the three main credit agencies, Callcredit, Equifax and Experian, online or by post. Alternatively, just get in touch with our team today and we will advise you of how to obtain your credit file for free.
If you find any inaccuracies, whether to do with credit information, address details or anything else, you should contact the agency immediately as they can take a month or more to correct. And remember that the details can differ between the three agencies, so it can pay to check them all.
Taking steps to repair your credit rating is essential if you are to find an affordable bad credit mortgage after bankruptcy. Please refer to our repair your credit rating page for simple tips on how this can be done.
Save a Good Deposit
Generally speaking, the greater the deposit you can save, the better your chance of securing a bad credit mortgage at the best possible rate.
Bankrupts who are recently discharged will find it harder to access a mortgage. They may find they are required to put down a deposit of up to 30%.
The amount required will reduce as time passes: to 15% after two to three years; to 10% after three to six years; until finally, after six years, you may only need 5%.
Generally speaking, the longer you are prepared to wait, the smaller the amount you will need for your deposit.
All mortgage applications, no matter what the credit status of the applicant is, are subject to an affordability assessment. This is used to decide how much money will be loaned. A discharged bankrupt – especially if the details are still on their credit report –will be subject to more stringent affordability criteria and the amount the lender is prepare to offer may be reduced accordingly. The mortgage may also be more expensive, in terms of interest rate and fees.
A specialist mortgage broker can help get the best deal.
My Partner Went Bankrupt; Can I Get a Mortgage?
If your partner is bankrupt it could have a knock-on effect. Even if your own credit record is exemplary, you can show that you can afford the mortgage on your own, and you are taking out a mortgage in your name only, you could still hit problems. That is because your credit records can become linked through either joint applications or even joint utility bills.
The best thing to do is get a copy of your own credit report and check whether you are linked by a ‘financial association’. If so, and assuming you do not have any joint credit at the moment, you can apply to have the link severed, which should help enormously. This is done by completing a ‘financial disassociation’ form, a copy of which should be sent to each of the three credit reference agencies.
You will have to wait until the bankruptcy is marked as discharged before making an application for a joint mortgage. Your partner should then follow the advice given in this article to help repair their credit status.
New Credit Issues After Bankruptcy
A bankruptcy is intended to effectively wipe out any old bad debt issues, so any previous credit problems, such as CCJs, IVAs, defaults and so on are left behind, meaning you get a fresh start. Once you become a discharged bankrupt, you can start to rebuild your credit profile.
The fact that you have been bankrupt means there are some lenders who will automatically decline your mortgage application. Others may consider you a higher risk, but will be prepared to make an offer. If, however, you find yourself in trouble with your finances again, you have a new hurdle to clear, as most lenders will expect to see a clean credit report following bankruptcy.
As with all credit issues, the size of the hurdle will depend on the size of the debt, and the age and nature of the issue. Also, lenders will prefer to see a debt showing as cleared or marked as satisfied – a hiccup, in other words, rather than the onset of a new series of problems.
We Can Help
At Just Mortgage Brokers, we have a specialist bad credit team that helps our clients secure an affordable mortgage after bankruptcy. Those with difficult credit histories are typically best served by the sorts of specialist lender not found on the high street. With many years of experience working with a network of bad credit lenders across the UK, we know where to find a mortgage to suit the particular needs of each and every client, regardless of their credit history. We also offer free, no obligation, initial advice.
To get started with your search for a competitive mortgage after bankruptcy, please get in touch with our specialist bad credit mortgage brokers.