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Mortgage after a Debt Relief Order

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Mortgage after a Debt Relief Order

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Last reviewed on 30th March 2022

Applying for a mortgage after a debt relief order (DRO) can be a daunting task. Many borrowers assume that getting a mortgage is impossible but that isn’t the case.

Although lenders will assess mortgage applications in great depth, it’s still possible to gain approval. This is of course with the right approach towards your mortgage.

Due to having had a DRO, lenders will base their assessment largely on the details of the DRO. This can involve the dates of both when the DRO was registered and when you were discharged.

The reasons for having had a debt relief order will also be taken into account. Your current financial conduct will also be a factor in which lenders may or may not be suitable.

It’s important to understand that each lender will make assessments in their own unique way. Some lenders are more likely to decline a mortgage with a debt relief order, whereas other lenders may be more suitable.

Approaching a high street lender will likely result in a declined application and you may need a specialist lender depending on your circumstances.

Our advisors specialise in mortgages involving debt and bad credit. Based on a borrower’s circumstances, our advisors are able to pinpoint the most suitable lenders to improve the chance of mortgage approval quite considerably. You can make an enquiry to get started or continue reading for more information.

What is a Debt Relief Order (DRO)?

A debt relief order can help you to manage your debts if you’re struggling to repay them. For instance, a DRO will allow you to be exempt from paying certain debts for a fixed period of time, typically 12 months.

When the DRO comes to an end, the debts included within the order will be written off. As a result, you’ll no longer need to pay these debts, which can help you to get your finances back on track. If during the DRO you can start to repay your creditors, the order can be revoked and you can clear any debts that you have.

Why are the dates around a debt relief order so critical?

The date of when your debt relief order was registered and the date of when you were discharged are vital bits of information for when making a mortgage application.

If you’re yet to be discharged, then you won’t be able to get a mortgage just yet. Whilst your DRO is active, it will prohibit you from borrowing large amounts of money. For this reason, a mortgage would simply be out of the question.

The good news is that debt relief orders typically last for 12 months. That being said, you still won’t be able to apply immediately after you’ve been discharged.

How soon after my DRO can I apply for a mortgage?

The majority of lenders require up to six years before they’ll even consider mortgage approval, but there are a handful of lenders that may offer you a mortgage much sooner. Nonetheless, you’ll still have to wait 12 months from the date of discharge and your credit file needs to be pretty much intact since discharge.

Lenders pay attention to the discharge date as the chances of mortgage approval improve the further time goes on. The reason lenders will only consider lending after 12 months of discharge is so they’re able to assess your credit affairs following the DRO.

Another reason the date of discharge is important is because of the deposit amount lenders will require for a mortgage. For instance, if you’ve been discharged for 12 months, you may need a minimum 30% deposit.

Having less than a 30% deposit can make it difficult to find a mortgage. On the other hand, if you’ve been discharged for six years, you may be approved with a 5-10% deposit.

How much can I borrow if I’ve had a DRO?

Having had a DRO will make you a high-risk borrower. As a result, they’ll only be a handful of lenders that you’ll be able to approach and may be limited in how much you can borrow. If you are eligible for a mortgage, the amount you can borrow will differ from lender to lender.

The majority of lenders will only lend up to three times your annual income, but there are lenders that may even lend up to five times your annual income. The amount you can borrow will therefore largely depend on your income.

Lenders will also factor in your outgoings as well as what you earn. Underwriters need to be sure that the loan is affordable so that it can be repaid. Having financial arrangements such as vehicles on finance may also hinder this part of the application as it will minimise the amount you’ll be able to borrow. The fewer outgoings you have, the better.

If you’re self-employed then things can get even more difficult. This is because self-employed applicants are deemed to be at a higher risk when compared to employed applicants.

That being said, if you have over 3 years of accounts then you should have no affordability issues during your mortgage assessment. If you have less than 3 years’ accounts, then it will be difficult to get a mortgage, but it is still possible.

What if I’ve had a restriction placed on my DRO?

If you’ve failed to comply with the terms of your debt relief order then you may be hit with a restriction on further borrowing. This is known as a debt relief restriction order or a DRRO.

The restriction is placed by official receivers to minimise further lending to the individual so that their credit doesn’t spiral out of control.

If you have a DRRO, then you’ll need to speak to an advisor. This is because the length and terms of the restriction will vary for each individual. Once an advisor understands the terms of your DRRO, they’ll then be able to provide you with a tailored answer.

Will bad credit affect me getting a mortgage after a DRO?

If you’ve had a debt relief order, then the chances are that you would have had credit issues. The type, severity and date of your credit issues will all play a part in which lenders are approachable and whether or not a mortgage is possible.

Getting a mortgage after a DRO is possible with the following credit issues:

  • Late payments and arrears
  • CCJs
  • IVA
  • Repossession
  • Defaults
  • Bankruptcy
  • Low credit score

Applying for a mortgage after a DRO requires specialist knowledge. As there can be so many variables involved with credit problems, approaching a lender yourself will likely result in a declined application.

Being declined a mortgage will only damage your credit file further, so do get professional advice before applying.

A good place to start your mortgage journey is to check your credit reports. Lenders will check your credit file, so it’s wise to check your file beforehand. You’ll then know exactly what your credit file shows so you can prepare your approach accordingly.

Read more: Can I get a mortgage with bad credit?

Specialist debt relief order mortgage advice

If you’ve had a DRO and need a mortgage then do get in touch. You can speak to an advisor who can guide you through the process. They’ll inform you of whether or not a mortgage is possible and the amount you’ll be able to borrow.

Our advisors specialise in difficult mortgage cases. Furthermore, our advisors have access to every UK lender and aren’t restricted to a panel of lenders. Call us now on 0800 195 0490 or make an enquiry below to get started.

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About the author

Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.