Bankruptcy Mortgages explained
Under the Insolvency Act of 1986, Bankruptcy applies to any individual debtor who is unable to repay their debts within a given time. If you are declared Bankrupt and need a Bankruptcy mortgage from a professional Bankruptcy mortgage lender, you will be subject to certain restrictions which include access to credit. Around 12 months later, once creditors are satisfied that the Bankruptcy debt is being dealt with, the debtor will be discharged from Bankruptcy and may find they can begin to borrow once more.
What is a Bankruptcy Mortgage?
A bankruptcy mortgage is a mortgage application for people that have declared themselves bankrupt in the past. While turning to bankruptcy or individual voluntary arrangements may be the only way to get out of debt for some people it leaves a bad mark on their credit rating: a bankruptcy mortgage is aware of the borrower’s credit history but is willing to lend them the money under certain circumstances where they would be refused by a standard mortgage.
What are the differences between a Bankruptcy Mortgage and a Standard Mortgage?
A bankruptcy mortgage is higher risk than a standard mortgage because it is designed for people who have had financial difficulties in the past. As such it is called a sub prime mortgage and is only available from specialised lenders, although the number of companies offering mortgages for individuals with adverse credit is growing. Currently there are around 30 lenders that offer bankruptcy mortgage services according to research done by the Council of Mortgage Lenders (CML). The rates for a bankruptcy mortgage are likely to be a couple of percentage points higher than a standard mortgage but individual case history and the circumstance of your debt will be considered.
How soon after Bankruptcy can I apply for a Mortgage?
Usually bankruptcy lasts for a year, therefore after this time you can apply for a mortgage although whether or not it is granted will depend on your credit record and the circumstance. Bankruptcy will stay on your credit record for six years. Usually individuals will have to show evidence that the circumstances that caused bankruptcy no longer apply.
Will getting a Bankruptcy Mortgage improve my credit rating?
Getting a bankruptcy mortgage is a good way to improve your credit rating if you have been bankrupt in the past, as long as you can keep up with your mortgage repayments you will be proving to future lenders that your financial management has improved.
Should I use a Broker to find a Bankruptcy Mortgage?
Bankruptcy mortgages are particularly specialist, therefore many firms that offer them only do so through a broker. Approaching a broker will give you access to a large amount of deals from a range of firms, because the rate you get quoted will depend so much on your previous case history going through an intermediary who knows the industry is the surest way to get a good deal and save you money.
What will I need to provide when applying for a Bankruptcy Mortgage?
When applying for a mortgage in adverse credit circumstances providing full details of your credit history is important, the more information you give the more they will understand your personal circumstances. You will also need to provide proof of your income. Before you approach a lender it is a good idea to think realistically about the amount you can afford to borrow and what monthly repayments you would be able to keep up with.
Increase your chances of success:
- Following bankruptcy keep your payments up to date and on time
- Put down a large deposit or down-payment
- Choose a mortgage lender who is FSA regulated and approved
- Get bankruptcy advice from an independent third party
- Use a broker or comparison tool to compare different bankruptcy mortgage quotes
When it comes to Bankruptcy mortgages and financing, those who have become Bankrupt through lack of mortgage funds may find that the picture is not as bleak as it was 10 years ago. In the past many lenders stopped debtors from borrowing for up to 7 years after Bankruptcy. Today, due to lenders specialising in adverse credit, borrowers may still be able to keep their home even if they have considerable arrears. However, even the most specialised Bankruptcy Mortgage lender will apply restrictions to Bankruptcy mortgage refinancing, in order to make sure they are covered if the lender cannot pay.
Bridging Loans explained
A bridging loan is typically used when an individual is unable to pay a mortgage at a particular time. It is a temporary solution to mortgage arrears and is usually accessed to alleviate cash flow problems until a source of finance can be found. A bridging loan is not just suitable for those hoping to pay back a residential mortgage, as it can also be used to extend property or to buy a business.
If you need some cash up front in order to find a mortgage for a bigger property, a bridging loan could be the right solution. For example, you’ve found your dream home but your first property is still on the market, so you need some money now to make a deposit. A bridging loan can also be used to buy a property at auction. In this case you might need a deposit quickly so that the mortgage lender can organise the payments for your new property.
Isn’t a Bridging Loan just another name for a Short Mortgage?
A bridging loan is more expensive than a normal mortgage and should only be used by those who can pay back quickly. They can be a great solution to find a mortgage speedily by providing the required deposit, but at the same time they are risky if you are unable to find the borrowed cash within the given time frame.
How does a bridging loan work?
The amount of money you can get from a bridging loan depends on the value of the properties involved and any existing mortgage. Speak to your individual lender to find out about their bridging loan policies and discover if you can afford to find a mortgage before your existing property is sold.
Which organisations deal with bridging loans?
Although you may find that your high street bank offers bridging loans, it would be wise to shop around and visit a number of specialist bridging loan lenders before deciding. A specialist will have the knowledge and resources to deal with your request quickly, which can make a huge difference when it comes to the property market. In general if you want to find a mortgage, extend a property or buy a business, a bridging loan can be a quick fix solution, providing ready cash within 10 days.
Can I use a bridging loan if the sale of my house falls through?
You can also apply for a bridging loan if the sale of your house falls through but you want to buy another property. Bridging loans however are expensive and are only a short-term solution. In today’s property market selling a house could take time so you may wish to consider changing your previous property to a to-let mortgage, or a quick-sell or auction would allow you to sell your property quickly and raise the money you need to buy your next property. You would also probably find that a second mortgage with no early repayment fees would work out cheaper than using a bridging loan.
Are there different types of bridging loans?
There are two types of bridging loans, ‘closed’ bridge loans and ‘open’ bridge loans. Closed are available to people who have already exchange contracts on the sale of their current house, while open bridge is where a sale has not been closed but where there it is likely that a sale will take place in the near future: your house must already be on the market. Most mortgage lenders will only allow 12-month open bridge loans, after which time the loan will have to be renegotiated.
How much does a bridging loan cost?
Bridging loans are more expensive than standard mortgages because they are short term. Usually they charge 2-2.5% in addition to the Bank of England’s base rate as well as an arrangement fee around 1% of the total loan. Beware of lower or no arrangement fees as this may be indicative of high interest rates, whether or not you opt for a lower arrangement fee or lower interest rate will depend on how long you envisage to use the loan, if you only intend to borrow for a short time and are confident you can pay off your debt after this time then a lower arrangement fee is more sensible.
Buy to Let Mortgages explained
There is very little difference between a buy to let mortgage and a traditional mortgage except a buy to let mortgage is taken in the assumption that income from rent will be used to pay back the mortgage. When it comes to buy to let mortgages there are two main types you will need to choose between – a repayment mortgage or an interest-only loan. With an interest only mortgage, lenders are often looking for a suitable investment product, while with a repayment mortgage, some lenders may ask for life insurance in conjunction with your loan.
Other options include fixed rate and variable rate mortgages. A fixed rate loan should provide you with some certainty about your monthly repayments whilst variable mortgage rates can change from month to month.
Property Advice Blog Top Tip!
When choosing a buy to let mortgage, take some additional sound property advice from an independent adviser or mortgage intermediary, in order to help you consolidate your ideas.
What are the additional costs of a buy to let mortgage?
In addition to monthly mortgage repayments you could also have to pay for:
- Building insurance
- Content cover for furnished properties
- Maintenance costs
- Dry periods when you don’t have tenants.
- Extra rent if tenants fall into arrears.
- Interest rate growth and related mortgage repayments.
Questions to consider before choosing your mortgage:
- Have you received advice from a variety of mortgage consultants?
- Have you thought about how rising interest rates could affect you?
- Do you have enough savings or income to pay for tenants who leave, rent arrears or if the property is empty?
- Is the mortgage affordable and will I be able to pay it in the long term?
When it comes to buy to let mortgages we recommend you consider all of these questions before you sign a contract. In addition you should get independent tax, legal and property advice from qualified specialists who can help you to see all the disadvantages and benefits of this investment method.
Can I change my current mortgage to a buy to let?
As the property market struggles many people are choosing to rent out their property and rent elsewhere to meet their changing needs. In order to rent out your property you will have to change from a normal repayment mortgage to a buy to let mortgage. While mortgage brokers are usually happy for you to do this, you may incur a fee or a higher rate of repayment; so do your research, and compare remortgaging to buy to let quotes.
What are the advantages of buy-to-let?
- Benefit from rising property prices
- Regular income/return from rent
- Pay off the mortgage with rent money
- Long term investment
- Rent out an existing property while you relocate
- Avoid problems associated with selling a house in a lagging property market
What are the disadvantages of buy-to-let?
- You will have to pay stamp duty, solicitor’s expenses
- Ongoing costs of property maintenance
- Property prices may not rise
- Have to consider mortgage repayment if property not occupied
- You must contact your mortgage lender to gain permission to rent your home out – this may result in them charging fees
Top tips for choosing a buy-to-let property:
- Choose a promising area
- Consider who you will be letting to: Families? Young couples? Students?
- Choose a property type and location appropriately
- Don’t overstretch your budget
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