What is a Debt Relief Order (DRO)?
A DRO consists of a period (officially called the ‘moratorium’) during which time they cannot undertake any new debt. Once the period ends, however, they are cleared of previous debt and can rebuild their credit record on their way up to a new mortgage.
Are prospective lenders willing to offer a mortgage to someone with an on-record DRO?
How to get a mortgage after a DRO – how long does a debt relief order last?
Investigating the DRO – the lender’s risk assessment
While some lenders will not adjust their basic policies by the DRO specifics, others will take account of the type of debt that has been cleared and base future borrowing on it. For example, a cleared credit card debt is unlikely to invoke the particular interest of a future lender but erasing a large tax bill might be considered more significant.
Each lender will have their own attitude to the details and may look to increase your deposit size or offer a higher rate of interest once everything is taken into account.
Debt relief restrictions ordersIf you failed to follow the rules imposed by the debt relief order, then you may have been served a debit relief restrictions order (DRRO) which includes an extension of the moratorium and other notes attached to the order. In this case, lenders are more likely to see you as a higher risk and either reject and application or offer adjusted terms. Any extension will also knock back the date of your discharge from the DRO.
Poor credit in your life after a debt relief order
Lenders are likely to ‘upgrade’ the impact of your poor financial administration and see less than serious credit black marks, such as a simple missed payment or bounced direct debit as an indication that the DRO didn’t help as it should.
Any lenders still considering you for a mortgage will want to look closely at the details of your subsequent bad credit and if there are too many similarities between the reasons for the DRO and later issues (for example, defaulting on a credit card when credit card debt formed part of the original order), then it will seriously affect your application.
It is important that you are especially careful with your credit following a DRO if you want to apply for a mortgage.
for a mortgage. How much deposit do I need to get a mortgage after a debt relief order?
The longer the time it has been since your DRO completed, the less of a factor it becomes, but during those six years it will have an impact on the deposit most viable lenders will expect, as can be seen from the following table.
Remember that other factors, such as the reasons for the DRO may affect these numbers and they should be considered a guide only.
Debt relief orders due to being self-employed
This is especially significant if the nature of the failed business is similar to any new venture.
Even with three years of full accounts detailing strong growth, a lender is likely to question the wisdom of returning to a business idea that failed so absolutely and may choose to reject or adjust an application on that basis.
Obtaining a mortgage with a bad credit history
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