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Mortgage after repossession

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 8, 2023

Mortgage after repossession

House repossession by your mortgage lender is devastating. You not only lose your home, but it also wrecks your credit score. Bouncing back after a mortgage repossession can be pretty challenging but not impossible.

It is possible to get a mortgage after a repossession, however, you may experience challenges in getting a mortgage lender willing to finance you, as the majority prefer borrowers with good credit. That said, working with a specialist mortgage broker can help you to rebuild your credit score and find suitable mortgage lenders.

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Can You Get a Mortgage After a Repossession?

Although most lenders are adamant about not financing borrowers with a history of repossession, a few specialise in bad credit mortgages. These specialist lenders may be willing to give you a mortgage deal regardless if you have had a property repossessed.

It is best to disclose your repossession history early in your mortgage application. Most lenders have strict policies regarding financing people with a repossession history, resulting in their applications being automatically rejected. However, if you or your specialist broker brings it up upfront, there might be room for negotiation on mortgage rates and consideration.

Lending Criteria for a Mortgage After Repossession

Specialist mortgage lenders consider the following factors in deciding whether you qualify for a mortgage after repossession and that’s why it is best to use mortgage brokers who know all about dealing with previous mortgage debt.

Date of Repossession

The date of repossession is a crucial factor for lenders in determining whether to finance you. The more recent your repossession, the more challenging it will be to get a mortgage as you are considered high-risk. If you qualify, you must make a larger deposit and pay a higher interest rate.

Below is an overview of your chances of getting a mortgage after repossession, depending on how recent the repossession was.

  • Less than one year.  Exceptionally rare.
  • 1-2 years. A few bad credit mortgage lenders. You will be expected to pay a 30-40% deposit.
  • 2-3 years. Slightly more lenders may be willing—the typical deposit requirement is 25%.
  • 3-4 years. You are considered moderate risk, and you may have more options. The required deposit is around 15-25%.
  • 4-5 years. A wider pool of potential buyers. 10-20% deposit.
  • 5-6 years. A wider pool of potential buyers. 10-20% deposit.
  • 6 years and more. You can apply just like anyone else who has never had a repossession.

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Reason for Repossession

Another important factor that lenders consider when deciding whether to give you a mortgage after repossession is the reason for repossession. They look at the underlying cause of why you were unable to keep up with the mortgage repayments. Some may be lenient to reasons such as fraud and ill health. However, you must provide the lender with relevant evidence to enable them to do their due diligence.

Amount Owed on the Property Before Repossession

The lower your mortgage arrears at repossession, the better your chances of securing a loan. If multiple properties were involved, securing a mortgage would be more challenging.

Whether You Have a Mortgage Shortfall Debt

A lender will rarely be willing to finance you if you have an outstanding mortgage shortfall debt on your repossessed property. You should pay off the shortfall debt before any outstanding debt.

Previous Lenders

Most mortgage lenders belong to a few parent companies. Therefore, you may find that the lender you are approaching is a sister company to the precious one. In this case, it is unlikely that the company will finance you.

Credit Report and Credit Score

Lenders assess your creditworthiness beyond your history of repossession. They look at your credit history before and after repossession. For instance, do you have other credit issues, such as individual voluntary agreements, missed payments, CCJs, and debt management plans?

On the other hand, you may have had an excellent credit record before your repossession. And, you continue to pay other debts diligently, e.g., car financing, credit card debt, and utility bills. It shows that you are committed to building yourself financially. Lenders will likely be lenient on you and offer you better interest rates.

Financial Status

Aside from your credit history, mortgage lenders also assess your current financial status to determine your creditworthiness, including:

  • Your current debt-to-income (DTI) ratio. Most lenders prefer a DTI of 36% or less to qualify for a mortgage.
  • If you have accumulated assets since your repossession, like savings and investments, it indicates to the lender that you are serious about rebuilding your finances. Resources are available for additional security if you cannot keep up with your loan payment.
  • How much you are willing to put towards the deposit. The more you can put into the deposit, the lower your interest rate and the better the loan terms.

Typically, mortgage lenders conduct an affordability assessment before accepting your mortgage application. It involves assessing your financial status to determine the terms of the mortgage. They use an affordability calculator to establish how much you can afford to pay and depending on how recent your repossession was as follows:

  • 1-3 years: 3X your income
  • 3-6 years: 4X your income
  • 6 years and above. 4.5-5X your income

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What Types of Lenders Would Be Willing to Finance You After a Repossession?

You may get a mortgage after repossession from both specialist and mainstream lenders. However, the application and approval process is much more thorough. For some lending agencies, the senior underwriters have to approve the application, and they will only accept you after six years have passed since your repossession. However, a few lenders have no limitations on how long it has been since the house repossession as long as you can prove you can afford the mortgage. Yet, other credit mortgage lenders are more lenient. That said, in most cases, a specialist lender is your best option for a mortgage after repossession.

How to Increase Your Chances of Qualifying for a Mortgage After a Repossession

There are some ways you can increase your creditworthiness leading up to your application for a mortgage after a repossession. Below are some tips:

Rebuild your credit rating

Your credit score took a massive hit after a house repossession. Yet, you need a high credit score to be considered for a mortgage. You can rebuild your credit score with stringent financial planning and optimising what you have.

Start by taking a close look at your finances and your credit report. Scrutinise each aspect of your expenditure to find opportunities where you can cut costs and minimise expenses. Downsize your lifestyle if need be. Get another job or source of income to increase your cash flow. Make a budget for the money available and stick to it. Negotiate with your lenders and devise a repayment plan for your outstanding debt. Pay your bills on time.

Remember, this will take time, so be patient with yourself. If you feel overwhelmed or stuck, speak to a counsellor or a financial advisor. If you have opportunities for grants or tax breaks, take advantage of them.

Keep checking your credit score every few months to see if it improves. The three main credit bureaus in the UK are Experian, Equifax, and TransUnion. Experian has a 30-day free trial, while Equifax and TransUnion offer free access to your credit report and credit score.

As your credit score improves, you may qualify for a secured loan or a credit builder loan. Apply for one, and get a credit amount equal to your security deposit. As your financial situation improves, get small manageable loans and pay on time. You can also put your utility bills on your credit card and pay back your credit card balance on time.

Save for Deposit 

Start saving up for the deposit as soon as you start thinking about getting a mortgage after a repossession. Anticipate that you will be required to pay a larger deposit than someone who has never had a repossession. The more you accumulate, the better, as it will give you negotiating power on your loan amount and terms. It will also give you more options for potential lenders.

Wait Before Applying for a Mortgage After Repossession 

As discussed earlier, how recent your house repossession was is a critical factor in whether you qualify. It also influences your required deposit, interest rate, and loan terms. Whenever possible, wait for at least three years. If you can wait for five to six years or more, you will have as vast a pool of potential lenders, interest rates, and deposit requirements as someone who has never faced repossession. It will also allow you ample time to save for your deposit and improve your financial status through savings, investments, and loans.

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Prepare for Your Mortgage Application 

When applying for a mortgage after repossession, you prove your identity, financial status, and creditworthiness to potential lenders.

Applying for the electoral roll before applying for a mortgage is suggested. Lenders use the data in your electoral roll to verify your identity and assess your stability. Other ways to provide proof of identity include ID documents, e.g., a passport or driving licence, and proof of address, such as utility bills and credit card bills.

Then, get your paperwork in order. Where applicable, get your monthly bank statements, pay slip, and proof of bonus and commission for the last three months. For a self-employed mortgage, you may need to show income reports and tax returns for the previous three years. Get your savings account statement to prove that you have a deposit ready.

Research the various lending companies to understand their criteria for qualifying for a mortgage after repossession and how you can prove your ability to repay the loan. Also, find out about their deposit requirement and interest rates.

Carefully consider how much you can afford and how you will finance the mortgage. For instance, are you better suited for a 15-year or 30-year mortgage? Can you qualify for a fixed rate instead of an adjustable-rate mortgage?

Get Expert Help From a Specialist Mortgage Broker

A specialist mortgage broker will be valuable in your mortgage application process in multiple ways. First, they understand the mortgage market well. They know the top lenders in your area for mortgages after repossession.

They also understand the criteria that the lenders use to qualify applicants. Therefore, a specialist broker offers a targeted approach to mortgage applications to reduce the number of hard inquiries on your credit report and to increase your chances of securing a mortgage after repossession. If you consult them in advance, they will advise you on improving your credit score and growing your finances. They will also assist you with the application process, determining how much you can afford, and planning repayments.

Remember, if you do not qualify the first time, it does not mean that you will never get a mortgage after repossession. Take some time to rebuild your credit rating and improve your financial status. The more time between your repossession and mortgage application, the better the chances of qualifying.

Contact us today for specialised assistance in getting a mortgage after repossession.

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Does a car repossession affect your ability to get a mortgage?

A car repossession affects your ability to get a mortgage because it lowers your credit score. A recent car repossession indicates to potential mortgage lenders that you are experiencing financial difficulty and may be unable to keep up with mortgage payments. That said, a car repossession is not considered as serious as a house repossession.

How long does a repossession stay on your credit record?

Typically, a house repossession record stays on your credit report for six years from the date of the repossession order. Afterwards, it disappears from your credit file, and you can access any credit like anyone else.

Contact us now to get the best possible rates for any adverse credit mortgage after a repossession.

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