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Can you get a Mortgage after a repossession?

If you’ve ever been in the difficult position of having your house repossessed, you’ll understand the huge shock and stress that comes with having to give up your home. What you might not consider so much at the time though is how your repossession is going to impact your credit score and your ability to get another mortgage in the future.

What’s in this article

In this article we’ll discuss what it means to be repossessed, how a previous repossession is viewed by different lenders, and how to go about getting back on the property ladder after you’ve lost a house.

What does it mean to get repossessed?

Before we go into the details of getting a mortgage after a repossession, let’s take a moment to understand exactly what it means to get repossessed, how a repossession comes about and why future lenders might look at it so cautiously.

The home repossession process begins with a missed repayment on your mortgage. Hopefully it will be a one off and you can catch up easily, but if not then your lender will want to talk to you to discuss how you intend to pay back your arrears. Do not bury your head in the sand at this stage - anything that you can do to stop being repossessed in the first place is the best possible outcome.

If you think that your mortgage is affordable long term but you’re just struggling temporarily, you may be able to come to an agreement with your lender about repayments, or potentially switching to a different type of mortgage. If you don’t think your mortgage is sustainable, you should try to negotiate time to sell the property so that you can pay off the loan.

If neither of these work and you continue to fall into arrears, your lender will begin court action. At this point they will provide you with full details of all your missed payments and total arrears. There are several things that a lender must legally do at this stage, the outcome being that you will receive letters from the court to tell you that your lender has applied for a possession order and to let you know the date of the possession hearing.

At the hearing, which you should attend, the court with reach a decision to either make an outright possession order, where you could be required to leave your home in as little as four weeks, or a suspended possession order, where you are allowed to stay in your home if you make regular repayments and pay of your arrears as set out by the court. If you outstay the date of the possession order or break the terms of the suspended order, bailiffs can evict you from your home.

Does a repossession show on my credit record?

Absolutely. A repossession is a very serious form of bad credit and will show on your credit reports for up to six years. Even after your repossession has been removed from your credit file you must still declare it if asked by lenders. If you fail to declare a past repossession and it comes to light further down the application process, the lender is highly likely to decline your application.

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What factors affect my chances of getting a mortgage after a repossession?

When looking at an application that includes a former repossession, lenders are likely to look in detail at the circumstances surrounding it to help them make their decision. The key factors that will be taken into consideration are:

  • How long ago the repossession occurred - the longer the better.
  • The amounts of money involved
  • The circumstances surrounding the repossession - if it was due to unforeseen illness or an accident for example, your lender may be more sympathetic than if it was a case of you taking on lots of additional debt, unmanageable loans or credit cards
  • Other credit issues
  • Your current financial position

The length of time since the repossession has occurred is going to be the key factor here. Your repossession will stay on your credit record for six years, starting from the date of your first missed payment, but as we’ve already discussed, you will have to declare it even after it has been removed from your records.

Most lenders will automatically reject applications where there has been a repossession in the past, no matter how long ago it occurred, but a significant minority will be prepared to consider applications when the repossession happened over six years ago and no longer shows on your file.

For repossessions in the last six years, things get trickier, and you’ll likely find you need to approach more specialist bad credit lenders. If your repossession happened within the last 3-6 years, you’ll be seen as higher risk and the number of lenders willing to offer you a mortgage will be significantly smaller. Under 3 years and you really will start to struggle. At this level you should expect to be asked for a much more significant deposit and to pay higher rates.

Will I pay higher interest rates?

Yes it’s quite likely that you’ll have to pay premium interest rates for a mortgage after a repossession, especially if you’ve had to go through a specialist lender. This is because your repossession makes you a high risk borrower, and lenders have to mitigate this risk by charging higher rates.

The rates you’re offered will probably vary depending on the amount of time that has passed since your repossession occurred and the LTV you’re looking for on your new mortgage. The longer the amount of time that has passed and the bigger the deposit you are able to put down, the better deals you’ll be able to secure. If you are coming up to a pivotal amount of time elapsed - three or six years for example - it may be worth waiting just until you’re over that threshold to open up better interest rates.

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More Information

How much deposit do I need to get a mortgage after I’ve been repossessed?

Again, this will depend on the lender and how long ago the repossession occurred, but generally you should expect to need a bigger deposit than if you were applying for a mortgage with a spotless credit record. This is another way that lenders mitigate risk, so the bigger the deposit you’re able to put down, the better your chances of having your application accepted.

Lenders often set their interest rates based on LTV bands, so if you are nearing the edge of a band it might be a good idea to save for a little longer before making your mortgage application. For example, if you currently have enough savings to give you an LTV of 81%, but your lender offers better rates for LTVs of below 80%, saving just a little more money now could save you significant amounts of interest in the long term.

Which lenders offer mortgages after repossession?

While most mainstream lenders will give a firm no, there are a range of specialist adverse credit mortgage lenders who may be more sympathetic, depending on your circumstances.

At the time of writing, (February 2023), the following lenders were prepared to consider applications for a mortgage after a previous repossession. Keep in mind that exact terms will vary depending on your personal circumstances, and that these examples provide just a sample:

  • Suffolk Building Society can consider loans if your repossession was more than three years ago and any shortfall debt has been repaid in full. They would offer a maximum LTV of 75%.
  • Loughborough Building Society will look at applications where repossessions occurred more than four years ago, so long as any residual debt was cleared over three months ago.
  • Aldermore offer up to 80% LTV repayment mortgages or 75% interest only mortgages up to a maximum of £400,000 where a repossession occurred more than three years ago.

Should I use a mortgage broker?

Yes definitely. A mortgage broker is useful regardless of any bad credit you might have, but if you’ve had a repossession in the past then they are invaluable as many bad credit lenders only accept applications via referral.

Finding a lender who is willing to offer you a mortgage after a repossession isn’t as simple as going online and comparing a few high street banks - there is a lot more research involved and it will involve niche lenders who are harder to find, with more complex terms and conditions. A broker does all of this for you. They will have access to the whole of the market and if you look specifically for a broker who has expertise in bad credit mortgages they will already have relationships with the lenders that are going to be the best match for you.

What can I do to improve my chances?

They say that time is a great healer, and this is definitely true of bad credit issues like repossession. One of the simplest things you can do is wait for time to pass and for your repossession to come off your credit record. This doesn’t mean it’s gone for good, but once six years have passed you will have a lot more in the way of options when it comes to getting a mortgage.

Waiting a bit longer before putting in your application also gives you time to build up some more savings, which is another good way to improve your chances of getting your mortgage application accepted. Getting your LTV as low as possible will open up more competitive interest rates and give you access to a bigger range of lenders.

The other important thing to do is to work on improving your overall credit score. Lenders will carry out credit checks as part of your mortgage assessment and even if your repossession is no longer on your record, they will still want to see that you have maintained a good grip on your finances and proven yourself reliable since it happened.

If you are worried about getting a mortgage with a poor credit score and think you could benefit from improving it, there are a few steps you can take:

  • Make sure you’re on the electoral register. This is a really simple way to prove your address. Ideally you should avoid moving house too often as well, as this can sometimes bring down your credit score.
  • Keep up with any repayments on existing credit cards, loans or other forms of credit. This sounds obvious, but don’t be fooled into thinking that the odd late payment here or there will go unnoticed. Any late or missed payments get recorded as part of your credit report, and if you have a history of bad credit then lenders will be paying extra attention to details like this.
  • Don’t apply for new credit. The odd credit search recorded on your file won’t do any harm, but if you have several credit applications showing in a short space of time it will be a red flag to lenders.
  • Reduce your credit utilisation ratio. This is the amount of debt you currently have as a proportion of what you have access to. For example, if you currently have a credit card with a credit limit of £4,000, and have a balance of £1,250, this gives you a credit utilisation ratio of 25%. Lenders like to see this ratio kept low - ideally under 30% - as this shows a healthy attitude to credit. High ratios give the impression that you are not borrowing responsibly and that you are ‘maxing out’ credit cards.

Conclusion

Although a repossession is a very serious form of bad credit, it doesn’t mean that you’ll never be able to get another mortgage. With the right planning and expert support there may well be a lender out there for you.

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