Mortgage After a Debt Relief Order

debt relief order (DRO) will write off your debts if you have a relatively low level of debt and few assets.  Mortgage eligibility can be affected by a DRO as lenders consider this to be an issue when assessing a client’s financial track record, meaning a debt relief order can often make it difficult to qualify for a mortgage.

Lenders will consider the following reasons when assessing applications from clients with a DRO:

  • How the DRO was registered
  • When the debt relief order was discharged
  • Post discharge restrictions against the applicant
  • Recent credit history since the discharge
  • The circumstances/reasons for the DRO
  • Your general financial circumstances
  • The size of the deposit you offer
  • How much you intend to borrow

Debt relief order date and subsequent discharge

One of the most important factors affecting a client’s mortgage eligibility is the date the debt relief order was made and when it was discharged. Most debt relief orders involve special conditions being placed on the individual. An example of this is the inability to borrow more than a specified sum within several years after the initial DRO.

When a DRO has been discharged, all debts included in the debt relief order are written off. The DRO itself will remain on the individuals credit history for a minimum of six years and all debts that were previously causing financial difficulty will be erased from record. After six years, the DRO will be removed from the credit history and will no longer impact the client’s ability to be approved for a mortgage.

There are some lenders who require approximately 12 months following a DRO before they consider a customer’s mortgage application. Policies and criteria vary significantly from one lender to the next therefore it is important to use a specialist mortgage broker such as UK Property Finance who will target only the most appropriate lenders for your case, avoiding the risk of adding further damage to your credit history by continual rejected applications.

Restrictions following DRO discharge

Every debt relief order is unique and carries its own specific terms, conditions and restrictions. If the individual in question does not comply with all terms and conditions set out in the DRO, it can result in further restrictions being imposed for a longer period.

It is therefore essential that all terms set out in the order are followed for the specified period without exception. After which, it is usually needed to demonstrate evidence of at least 12 months of ‘good financial behaviour’ before qualifying for a mortgage.

Additional credit issues following a DRO

It is not uncommon for individuals with a DRO to experience additional credit issues. Further ,credit issues following a DRO can make it even more difficult to qualify for a mortgage. You may find it impossible to qualify with a high street lender in such a situation.

Independent specialist lenders can be more lenient in these situations. If a lender demonstrates flexibility with DRO applicants, it may also be more acceptable of other credit issues. Your likelihood of acceptance depends on your wider financial circumstances at the time of application.

For example, the nature and extent of the credit issues will be considered, along with your income, outgoings and your employment status. The size of the loan and the amount of deposit provided will also be taken into consideration.

Credit issues increase the risk level, so it is important that you provide as much evidence as necessary to prove that you are a safe and responsible applicant.

What other issues could affect my eligibility?

The impact of a debt relief order can be worsened by several common credit issues. Examples of which include the following:

  • Recent or historic defaults
  • Evidence of a late payment
  • No credit history
  • County court judgements
  • Evidence of arrears
  • Individual involuntary arrangements
  • Repossession of property
  • Payday loan applications

Each of the above can further complicate the application process but will not necessarily stop you from obtaining a mortgage.

Check your credit history ahead of time

Every unsuccessful application you submit when applying for a mortgage could inflict further damage on your credit file. It is therefore of the utmost importance to know your credit standing, before applying.

At UK Property Finance we can help build a better understanding of your credit history and the available options without putting your credit score at risk.  Irrespective of how recent or extensive the damage may be, we can help you find the loan to suit your requirements and budget.

How much deposit will I need to pay?

Eligibility for a mortgage improves by offering a bigger deposit. Even if it is not strictly necessary to offer a larger amount, doing so could reduce the APR and overall borrowing costs for your mortgage. Lenders are typically more likely to accept a lower deposit where a debt relief order was discharged at least five years ago however this varies significantly from one lender to the next.

We have listed below the approximate deposit you can expect to be asked for, in accordance with when the DRO was discharged:

Years from discharge: Deposit needed:
0 – 1 year from discharge 30 — 35%
1 – 2 years from discharge 20 — 30%
2 – 3 years from discharge 15 — 20%
3 – 4 years from discharge 10 — 15%
4 -5 years from discharge 5 — 10%
5 -6 years from discharge 5 — 10%

Please note that the above are rough indications only.  Contact a member of the team at UK Property Finance for a more accurate indication of your eligibility and deposit requirements.

How long do debt relief orders last?

The average debt relief order lasts for 12 months. Upon completion of a DRO, all the debts included in the order are formally discharged and wiped from your credit history. The debt relief order itself will remain visible on your credit record for a minimum of six years.

Depending on the nature and severity of your case, it is possible for a DRO to be extended to as much as 15 years by way of Debt Relief Restriction Order. This is something that only happens when there is evidence of dishonesty or reckless behaviour on the part of the individual affected.

Will I qualify for credit after a debt relief order?

It depends entirely on the type of credit needed, how much you need to borrow and the nature of your debt relief order. Applications submitted to specialist lenders are considered based on wider financial merit rather than being disqualified simply for having a debt relief order.  You will instead be assessed in other ways, such as:

  • Proof of income
  • Other debts and outgoings
  • Financial stability
  • Deposit size (where applicable)
  • Security for the loan
  • Repayment period length

How much can I borrow with a DRO?

There are technically no limitations to how much you can borrow with a DRO on your file. If you are considered eligible by a lender, like any other applicant, the amount you can borrow will be determined by your financial position at the time, your income, the deposit you are able to provide and your budget.

As a general indication, some lenders limit themselves to a maximum of 3X or 4X the applicant’s annual salary for a DRO mortgage. Others are willing to offer 5X or even 6X your annual income depending on the strength of your application.

Lenders are primarily interested in your ability to comfortably repay the loan as agreed. No specific limitations apply about how much you can borrow.

Will I qualify for a buy to let mortgage?

Qualification criteria for a buy to let mortgage is generally stricter than conventional mortgages. You can expect to be asked for a bigger deposit (usually 15% to 25% minimum). You will also find more lenders willing to consider your case if your DRO was discharged a minimum of three years ago.

Can I obtain a secured loan with a DRO?

If you have a debt relief order, you are far more likely to qualify for a secured loan than an unsecured personal loan. This is because lenders typically view secured loans as lower-risk products than unsecured loans. The higher the value of your assets, the more you can apply for by way of a secured loan.

It is still possible that your DRO (and any other credit issues you have) could affect your eligibility with mainstream lenders. You may find the support you need beyond the high street and instead from a specialist lender. If you are considering applying for a secured loan of any kind with a debt relief order, contact UK Property Finance to discuss the available options.

FCA disclaimer

*Please note that the UK Property Finance website provides information for reference purposes only, which under no circumstances should be interpreted as formal legal or financial advice. We are only able to offer expert financial support and suggestions upon discussing the individual requirements of the clients we work with. We cannot and will not guarantee the completeness, accuracy or relevance of the information published on the UK Property Finance website, which is subject to change at any time and without notice. If you require financial advice and support of any kind, please contact us for your free consultation.