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Will I be able to get a mortgage after bankruptcy?

By James Falla (about the author)
8 November 2013

If you are hoping to get a mortgage after bankruptcy we consider whether it will be possible to do so and the steps you can take to ensure that you get the best mortgage deal.

If you are considering bankruptcy or are already bankrupt one of the things you may be worried about is whether you will ever be able to get a mortgage in the future. The simple answer to this is yes but you will find it more far more difficult than someone who has not been bankrupt.

As with other debt solutions declaring bankruptcy has a negative effect on your credit rating. Even though it is likely that you will be discharged from bankruptcy after 12 months the record of your bankruptcy will remain on your credit file for 6 years.

Throughout this 6 year period potential mortgage lenders will see you have been bankrupt when they carry out a credit check against you and be less inclined to give you a mortgage.

This however does not mean that you will never be able to get a mortgage. In fact it may well be possible to get a mortgage within the 6 year period that your credit rating is affected as there are ways in which you can start to improve your credit rating as soon as you have been discharged from bankruptcy.

Can I apply for a mortgage as soon as I am discharged from bankruptcy?

In most cases you will be discharged from bankruptcy after one year. However your ability to get a mortgage will still be very limited at this stage.

The record of your bankruptcy will remain on your credit report for 6 years from the start date of your bankruptcy. This means that your credit rating will continue to be very poor certainly in the short term even after you are discharged.

Any potential lenders will do a credit check and see your bankruptcy on your credit file and this will indicate to them that you are a high risk and they will not accept your mortgage application.  Even if you have access to a large deposit you may still to be turned down by most mortgage lenders.

How long will I have to wait before applying for a mortgage after bankruptcy?

There are no hard and fast rules about how long you will have to wait before you can successfully apply for a mortgage after bankruptcy. However in the current mortgage market you will normally have to plan to wait for 2-3 years after your discharge.

Even then you may only be accepted for a mortgage by a sub-prime lender.  Sub-Prime are mortgage lender who are more prepared to lend to people with poor credit ratings. The main issue with sub-prime lenders are that they will normally charge a much higher interest rate than a high street lender. However they are a good way of getting a mortgage more quickly after bankruptcy.

Waiting 2-3 years for even a sub-prime lender may seem a long time however one of the things you also need to bear in mind is that you will not have any chance of getting a mortgage unless you have a reasonable cash deposit. This will normally need to be at least 15-20 percent of the value of the property you are looking to buy.

Generally speaking if you have recently been discharged from bankruptcy it will normally take you a few years to save this kind of deposit. Therefore for most people in this position waiting for a few years before making a mortgage application will actually be unavoidable.

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How can I improve my chances of getting a mortgage after bankruptcy?

There is little or nothing you can do about the fact that the record of your bankruptcy remains on your credit file for 6 years meaning that your ability to get a mortgage will be negatively affected during this time.

Nevertheless there are certain things that you can do to make sure that your credit rating does not continue to be affected after the 6 year period.  It is important to do these even if you do not wish to apply for a mortgage in the future as even after the record of your bankruptcy has been removed your credit could continue to be poorly affected unless you take some action.

The first thing to do after you are discharged is check that any default notices on your credit file are issued no later than the start date of your bankruptcy. Any such default notices remain on your credit file for 6 years and so if they are applied after the date of your bankruptcy they will continue to affect your credit rating after the record of your bankruptcy has been removed from your file.

You can check for default notices by getting a copy of your credit file. If any are registered after the date of your bankruptcy you should contact the associated creditors yourself and request that the date of issue is changed to the same date as you were made bankrupt. The creditors are obliged under the data protection act to comply with your request.

Taking credit to improve your credit rating

Simply waiting for 6 years until the record of your bankruptcy and any default notices have disappeared from your credit file might be an option you are considering before applying for a mortgage.

However even this will not guarantee that you will be accepted by a high street mortgage lender. This is because after 6 years you will have no history of using credit at all. If you have no history of using credit responsibly a mortgage lender may still find it difficult to lend to you.

To overcome this problem you need to start building up a history of responsible borrowing and repayment as soon as you are discharged from bankruptcy. One of the best ways to do this is by applying for a so called credit rating improvement credit card.  

Understandably after you have been discharged from bankruptcy getting a credit card is probably the last thing you will be wanting to do however this can actually be an excellent way to rebuild your credit history if used in the correct way.

Due to your poor credit rating you will have to apply to a sub-prime credit card supplier such as Vanquis or Aqua. It is imperative you understand that these cards have a very high rate of interest and should only be used to buy items you can afford such as food and then paid in full each month so as to never incur the high interest charges.

This is will generate a history of responsible credit usage on your credit file and it means that in the future when your potential mortgage lender does a credit search they will see that you have had credit and serviced your account without problems.  This will give you a far better chance of getting a mortgage than if you have no credit history at all.

Should I avoid bankruptcy if I want a mortgage in the future?

As with most debt solutions bankruptcy will affect your credit rating negatively. However this should really not be your main concerns if you are struggling with debt and need to find the solution that will best solve this problem for you.

If the best solution for you is bankruptcy then yes it is likely to affect your ability to get a mortgage for the next few years. However it does not mean that you will never be able to get a mortgage in the future.

Declaring bankruptcy will have a negative effect on your credit but will also leave you debt free in most cases and when you are able to get a mortgage you can be safe in the knowledge that you have no other debt to deal with.

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