Time to write an updated post ready for 2022 on getting a mortgage after being discharged from Bankruptcy. I think the easiest way to look at this is to breakdown when you were discharged from your Bankruptcy. We can then see what your options are at each milestone.
How long have you been discharged for?
Under 1 year discharged – At less than one year discharged you are limited to probably 2 lenders. As you can probably imagine when there is not a lot of competition that typically means higher interest rates. It also means a bigger deposit will be required. As things stand you are looking at around a 35-40% deposit needed with interest rates starting at around 5.5%. Those rates can go up to around 7.5%.
Under 3 years discharged – Not a lot changes from above. You may find interest rates are marginally lower but you are still looking at a 35-40% deposit in the current climate.
3-5 years discharged – This is where you will start to see a big shift in your options. At 3 years discharged in theory you could be looking at normal rates with a 10% deposit. Realistically most people will struggle to get pass the credit score needed for a 90% mortgage at normal rates however. But what is interesting is that you could be looking at little building societies who charge slightly higher interest rates (maybe 3%) with a 10% deposit OR normal rates with a 25% deposit. The point is that at 3 years discharged, there will be options for the majority of people rather than a minority.
5 years discharged – Not a lot changes here from 3-5 years, however some high street lenders work on the date of registration for the bankruptcy rather than the date of discharge. At 5 years discharged you may find there are a couple of additional options at normal rates.
6 years discharged – This is where the majority of other lenders will come in to play. The bankruptcy will fall off your credit file and everything should start to look a lot cleaner.
Additional points regarding Bankruptcy and Mortgage applications
There are a few other things to bare in mind when it comes to applying for a Mortgage post bankruptcy.
- Who was included in the bankruptcy? An example here is 2 particular high street lenders will never approve a mortgage if they had to write off a penny. In practice that means once the bankruptcy has dropped off your credit report they still hold their internal records. These records will still show they had to write money off.
- How does your credit report look? Bankruptcies can look very difference. You may have someone who went bankrupt over an unpaid HMRC tax bill. That tax bill will not appear on your credit report as it is not a credit agreement. On the flip side you may have someone who had 5 credit cards which were all wrapped up into the bankruptcy. That typically means there are 5 defaulted accounts showing on their credit report in addition to the bankruptcy.
Bankruptcy is always an interesting one from a Mortgage perspective. There are usually options in the early years after discharge but it tends to be a case that people do not have the deposit needed or they are not prepared to pay the rates that are available.
We usually find people wait until they have been discharged for 3 years before looking to apply for a mortgage. But if you would like to see what your options are, please do get in touch. We are always happy to have a chat. We can get an idea of your circumstances and come back to you with some potential options.