How to buy a house after going bankrupt
- 02 Nov 2021
Getting a mortgage to buy a house is possible after you have gone bankrupt. However, you will normally have to wait until the record has come off your credit file.
Included in this article:
- Can you buy a house after you go bankrupt?
- What size of mortgage can you get?
- How much will your mortgage cost?
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Can you buy a house after you go bankrupt?
You may be surprised to learn that it is possible to buy a house when your bankruptcy is over. You will normally be discharged after 1 year. That said, it is unlikely you will be able to get a mortgage immediately.
The key influencing factor is your credit score. It will not be possible to get a mortgage from a high street lender until the record of your bankruptcy has actually been removed from your credit file. This will only happen 6 years after the date you went bankrupt.
As soon as you are discharged, you can start improving your score by using a credit repair credit card. This will be helpful. However, even if your rating improves in the mean time, the bankruptcy record will remain. It can’t be taken off any sooner. If you apply for a mortgage before it is removed, high street lenders will reject you.
After the bankruptcy record has come off your credit file, there are a select few high street lenders who will then potentially offer you a mortgage at competitive rates. Using a specialist mortgage broker will avoid wasting your time with rejected applications. These could also negatively impact your credit file.
Need to speak to a specialist mortgage broker about buying a house after discharge from bankruptcy? Give us a call on 0800 044 3194.
What size of mortgage can you get?
The size of mortgage you will be able to borrow will depend on your ability to afford the repayments.
As a good rule of thumb, most high street lenders will only be willing to lend up to 4 times your gross annual income. This is your yearly income before tax and other deductions. If you want to borrow anything more than this, they will worry that the payments will not be affordable.
In other words, the maximum value of the property you can buy, will be 4 x your gross income plus the deposit you put down.
You will need to budget for a deposit of at least 10% of the value of the property. Any less, and it is unlikely that any lender will consider you. Of course, if you can put down more, your mortgage options will be wider. A larger deposit means you are more likely to get a better deal.
Saving for as long as you can to get together the greatest deposit you can, is critical to the type of property you can buy.
If you are buying in joint names with someone else, the maximum amount of mortgage you can borrow will be the equivalent of 4 x your joint annual incomes.
How much will your mortgage cost?
The cost of your mortgage will depend on the level of interest the lender charges. The lowest and most competitive rates are charged by high street lenders.
Once the record of bankruptcy has come off your credit file, a specialist broker should be able to find you a deal from one of these lenders.
Of course, your ability to borrow the money you need to buy a house will also depend on you passing the affordability checks. Always keep the “4 x gross annual income” number in mind.
In addition to the interest charged by your lender, you also have to factor in the cost of the broker’s arrangement fee. Typically this will be a minimum of £1000, but is likely to increase depending on the amount you need to borrow. This fee can be paid or added to the mortgage.
Typically, you will be able to get a 2 or 3 year deal. You will then need to remortgage onto a new deal or move to the lender’s standard variable rate.
Want help with buying a house after you have been bankrupt? Give us a call (0800 044 3194) or complete the form below.