Individuals who are currently bankrupt will not be able to obtain a mortgage by law. However, if you're a discharged bankrupt or have previously entered into an IVA you are able to apply for a mortgage but will inevitably experience problems being accepted by the majority of high street lenders as they will consider you an unacceptable risk.
Declaring yourself bankrupt is one way of dealing with debts you can no longer manage. An individual is described as being bankrupt when they are relieved from paying all debts once their assets have been surrendered to an appointed third party. Bankruptcy proceedings are managed via the court system, with the appointed third party designated by the court in charge of the proceedings.
Coinciding with the turbulent economic situation of recent years, there has been a noticeable upward trend in the number of people declaring insolvency. Official figures from the Insolvency Service show 135,089 people were declared insolvent in 2010, up 0.7% on 2009 and the highest since records began in 1960. Although the figures have fallen back slightly in the past couple of years, there remains a significant proportion of the population who will have their credit record blighted and future credit options limited due to personal insolvency.
The Enterprise Act which came into force on 1st April 2004, reduced the discharge period from three years to 12 months. Once you are discharged you are free to apply for a mortgage. However IVA and bankruptcy information remains on a credit file for six years from the date of the order and most high street lenders will continue to treat you as insolvent or bankrupt and will turn you down point blank.
Fortunately some specialist lenders recognise that a history of insolvency or bankruptcy is not necessarily an indication of a borrower’s ability to repay their mortgage in the future. A small number of specialist lenders will consider applications from people two or three years after they have been bankrupted. They will take into consideration how long you have been in employment or self employment and your recent track record of managing your finances. It will also be favourable if you are making a joint application with someone who has not previously been declared bankrupt. So, if you are currently in a good stable job and there are no recent missed or late payments, arrears or defaults on your credit file you have a reasonable chance, but you will need to lay your hands on a chunky deposit of around 25%.