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4 tips on getting a mortgage after bankruptcy

4 tips on getting a mortgage after bankruptcy

If you’ve been bankrupt in the past, you’ve clearly had financial difficulties. That means any lender will look very closely at your situation before offering you a mortgage. But the good news is there are steps you can take to give your application a better chance of success.

Tobi Owens
From the Mortgages team
minute read
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Posted 2 JANUARY 2020

1. Choose a specialist mortgage lender

Many mainstream lenders shy away from the potential risks associated with someone who has been bankrupt, but there are specialist lenders – sometimes referred to as adverse lenders – who may consider your mortgage application while bankruptcy still appears on your credit file. 

Bankruptcy remains on your credit file for six years and while adverse lenders may offer you a mortgage during that time, they could charge a higher rate of interest (7-9%), because of the perceived risk.  

If you get a mortgage from an adverse lender and meet your repayments on time and in full, your credit rating should start to recover. With a stronger credit rating, you might, at some point, be able to move from a specialist mortgage lender to a conventional one offering more competitive interest rates (typically, 2-3%).

Your other option is to wait six years after your bankruptcy is discharged (which itself usually takes 12 months) and then apply for a mortgage. At this point, your bankruptcy will no longer appear on your credit file so it’s worthwhile applying for a conventional mortgage. 

2. Check your eligibility

Adverse lenders may impose additional eligibility requirements to protect themselves. These can include being discharged from bankruptcy for at least three years and having a clean credit profile since your discharge (ie, not missing any repayments on outstanding credit). 

3. Use a mortgage broker

If you’re thinking of applying for a mortgage, a broker could offer advice on the options available to you. This could be applying to an adverse lender, or waiting until bankruptcy is no longer on your credit file.

4. Have a large deposit

If you’re applying for a mortgage while bankruptcy is still on your credit file, you’ll often be expected to pay a deposit of between 20-40% of the property’s value. That’s because many adverse lenders cap the amount that they’re prepared to lend at 60% of the property’s value, with just a few prepared to go as high as 80%. 

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