Can I Get a Mortgage After a Debt Relief Order?

A debt relief order (DRO) is a court order that can help people with limited assets and income to pay off their debts. The order can be made if you owe up to £20,000, have little or no surplus income, own less than £1,000 in assets and don’t own your home. Once the order is made, your creditors are legally prevented from taking any further action against you. This means that you won’t have to make any payments towards certain debts for a specified period of time, called a "moratorium" (usually 12 months). After this time, any remaining debt will be written off. Debt relief orders are a relatively new process, but they have already helped many people to get out of debt. For people who are struggling to repay their debts, a debt relief order – as indicated by the name - can certainly provide much-needed relief.

Debt relief orders are considered a "lite" version of bankruptcy, as they're much cheaper and easier to qualify for. However, they also have a significant impact on your credit rating, which can make it more difficult to obtain credit in the future.

Many people who have been through a debt relief order want to start rebuilding their finances and their credit rating. As people who qualify for a DRO don't own their home, it's normally a goal to get on the property ladder once their financial situation has been sorted out.

Getting a mortgage after a debt relief order is possible but it can be difficult, depending on how long it’s been since you were discharged from the DRO. Additionally, your credit rating will have been affected by the DRO, which could make it even harder to get a mortgage.

That's why it's important to go through an independent, specialist mortgage broker - such as John Charcol - who has access to the whole market. We can match you with the right lender for your situation.

A debt relief order can have a significant impact on the lenders and products available to you and you may find it difficult to obtain a mortgage at all if you're applying soon after your DRO.

If you receive a mortgage offer from an adverse credit lender, you may find that it has:

• A higher interest rate: this is because lenders will view you as a high risk borrower and charge you a higher rate to compensate for this risk

A higher deposit requirement: you may need to put down a larger deposit if you have a debt relief order on your credit file in order to reduce the lender's risk. This can be up to 25%

If you have a DRO, it's likely that you’ll have experience with other credit problems or bad credit events. After all, rebuilding your finances following a debt relief order can be difficult and it's possible to fall into debt again. If these additional credit issues pile up, it can make it more complicated to be approved for a mortgage. In this case, trying to go through a regular high-street lender may not work out.

Adverse credit and subprime lenders tend to be more likely to consider DRO applicants with other credit issues. This is because they learn about the circumstances that led to the bad credit event(s) and take this into account when assessing your application.

If you require one of these specialist lenders then you’ll likely need a mortgage broker like John Charcol as many of these lenders only operate via intermediaries; they don’t deal directly with the borrower.

A DRRO, or debt relief restriction order, is a punishment for not following the terms of your debt relief order. This could involve restricted borrowing in the future. Official receivers place a restriction on lending to individuals in order to keep their credit from spiralling out of control.

If you have a DRRO, you'll need to speak with a specialist broker such as John Charcol. The length and conditions of the restriction will differ for each person. After an adviser understands your DRRO's provisions, they'll be able to give you advice on your mortgage options.

If you're having trouble with your present level of credit and are seeking to apply for a DRO, it's unlikely that you'll be able to get a mortgage or that we would advise you to do so. However, if you do obtain a mortgage, you’ll no longer be eligible for a debt relief order, and you will be required to pay both the mortgage and any outstanding debts as normal.

No, it's illegal for lenders to grant you a mortgage during the moratorium period. This is because you aren't allowed to take on any additional debt during this time. So, no matter how lenient some types of lenders may be, they will not grant you a mortgage while your DRO is still active.

If you've been discharged from your DRO, that means that it's no longer active and you're no longer bound by its terms. This gives you a fresh start, but it doesn't mean that your credit history will be wiped clean. There is only one lender currently on the market that will consider applicants who have been discharged from their DRO within the last 12 months. More lenders, including some high street ones, building societies and adverse credit lenders, will consider you if you’ve been discharged from your DRO for at least 1 – 3 years.

So, if it's been under a year since you were discharged, it's probably best to try and wait a little longer before applying for a mortgage so you can secure a better deal.

An independent, specialist mortgage broker like John Charcol can help you to get on the property ladder, even if you’ve had a DRO or other credit issues. We understand that people's circumstances can change and that life doesn't always go according to plan. We’ll use our expertise to assess your situation and point you in the right direction.

Contact us today on 0330 433 2927 to learn more about your mortgage options.