Sometimes considered ‘bankruptcy-lite’, a debt relief order is a form of insolvency that is used if the debtor owes less than £20,000 and has less than £1,000 in assets. Due to the specific criteria for applying, a DRO is only issued to people who do not own a house and do not have a mortgage, thus for many who have come out of one, looking to a mortgage represents the improvement in their personal finances and the chance of an improved life.
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?
Applying for a Mortgage After a Debt Relief Order
What is a Debt Relief Order (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
If you want to get a mortgage in the years immediately following the DRO, then you will need to provide all details regarding the order to the prospective mortgage lender.
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.
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 orders
If 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
Running up debt and showing adverse credit in the years following a completed debt relief order is going to be seen extremely negatively.
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.
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.
How much deposit do I need to get a mortgage after a debt relief order?
One of the factors that is going to be strongly affected by your debt relief order is the loan-to-value (LTV) size of the mortgage and consequently, the deposit you will need to have.
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.
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
A failed small business can lead to an application for a debt relief order and when applying for a mortgage as a self-employed person in the following years, the earlier DRO will be a large factor.
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.
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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