Getting a Mortgage With a Debt Relief Order

A debt relief order (DRO) can help you deal with personal debts you’re unable to repay, but entering these arrangements can have an impact on your credit report and make it more difficult to secure personal finance in the future. Here you will learn how DROs impact mortgage applications, and what your options are if you’re buying a home having had one in the past.

Can you get a mortgage after a debt relief order?

Yes. If you’ve had a debt relief order in the past, it’s harder to get a mortgage, as there will be fewer lenders willing to consider your application, but it’s possible. Those lenders that offer bad credit mortgages, often referred to as subprime lenders, are most likely to be able to help. 

Some specialist lenders tend to offer preferential rates via an intermediary, or sometimes even offer broker-only access to their bad credit range of mortgages, so it’s a good idea to seek advice from brokers like ourselves if you have a DRO or similarly serious credit issues.

Lending criteria for this bad credit type

When you apply for a mortgage with a severe credit issue, such as a DRO, lenders will want to investigate your credit history. The reason for the DRO, when it was registered and the amount you were in debt will all impact their assessment. They will also look at how financially responsible you’ve been since the DRO was registered.

Typically, as with all bad credit mortgages, the more recent and larger the monetary value of your DRO, the fewer lenders that will be available to you. Most lenders, especially those on the high street, will want you to have been clear of a DRO for six years before they will consider a mortgage application. However, specialist lenders may not have such a long post-DRO waiting period. 

The following additional criteria will also be considered alongside your credit issues:

• Deposit size - It’s often necessary to provide a larger deposit if you have serious credit issues, such as a DRO. However, there are also some lenders who may consider asset security - especially for commercial mortgage applications.
• Income - Your annual income is one of the most significant factors, as this will determine how much you can repay per month. They will also look at your debt to income (DTI) ratio.
• Property specific criteria - It can be harder to get an unusual property if you’re already a high risk applicant, however, lender criteria varies vastly in terms of the types of property that they deem suitable for a mortgage, so it’s important to seek advice and compare lenders to find a suitable product.

How to get a mortgage after a DRO

A debt relief order mortgage is going to be much easier to secure with the assistance of a specialist mortgage broker, like ourselves. Brokers with knowledge and experience in the bad credit lending niche know which lenders are most willing to look at post-DRO mortgage applications in the shortest time since the issue was registered.

It’s also wise to keep your finances in check in the years leading up to your application. Ensure all financial commitments are met on time, and avoid taking on unnecessary credit.

How long after a DRO can you get a mortgage?

In most cases you’ll need to wait 6 years after the closure of the DRO. A debt relief order generally lasts for 12 months, so 7 years from the time it was registered. 

While you won’t be able to get a mortgage while in the DRO for the year it’s in place, there are specialist lenders willing to consider applications as early as 12 months after completion. 

Ready to get started on your mortgage journey? You can compare the latest bad credit mortgage rates below or choose the option to have one of our brokers do it for you:

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Available lenders and interest rates

Much like having a debt management plan there will be fewer lenders available to you if you’ve had a DRO in the past. Typically the longer ago your DRO was discharged, the more lenders that become available to you. After 6 years it will be removed from your credit file, so will no longer affect your application. 

Rates offered by subprime lenders are generally higher to account for the greater level of risk they are taking on in providing your loan. However, there is still plenty of competition in the market, so it’s worth comparing every option to secure the best rate available.

Will your maximum borrowing be impacted?

If you’ve had a DRO in the past, you’re unlikely to be able to borrow as high of a multiple of your income as someone with a good credit score. This can limit the amount you can borrow to buy a property to around 3-4 times your income, as opposed to the more typically offered 4.5 times.

That said, there are specialist lenders who may offer more than this, depending on your broader circumstances. Those with a larger deposit and income will find this less challenging. However, once six years has past, your history of bad credit will no longer impact your loan size. 

You can use the calculator below to work out how much you can potentially borrow based on the income multiples that most bad credit mortgage lenders use:

Tips to improve your credit profile

Improving your credit history ahead of a mortgage application can make all the difference if you have a DRO against your name. The tips below can help you do just that:

Check your credit records

There are several services designed to help you understand your credit record; the three leading agencies are Experian, Callcredit and Equifax.

Since many providers use a combination of these services to perform their background checks, it makes sense to confirm your information is correct and up to date on each system.

Common errors such as outdated bills, incorrect addresses or missing electoral register information can typically be resolved without a fuss and will help to improve your score. 

You can download your credit reports for free by accessing a free trial on CheckMyFile.

Increase your credit activity

Demonstrating that you can successfully maintain a credit account will improve your score, and there are credit accounts specifically for low credit score applicants.

If you can use your account and repay the balance each month, this shows you can borrow and spend within your means. Not only does this increase your credit score, but also improves your eligibility to potential lenders. 

Explore quick wins

Quick fixes that can boost your credit score include joining the electoral register, making sure all of your household bills are in your name, and opening a UK bank account. If you can clear any outstanding debts that you are in a position to settle, that can help too.

Why choose Teito for your bad credit mortgage?

At Teito our expert bad credit mortgage brokers help people with an adverse credit history to find a suitable mortgage every day. If you’ve had a DRO, even if you’ve been  turned down elsewhere, get in touch. 

If you’ve had a fairly recent DRO, it’s not advisable to compare mortgages independently, as it can be difficult to align lender criteria with your personal circumstances. Failed mortgage applications can further damage your credit score, making it a longer wait until you can get the mortgage you need, so arranging a free initial consultation with one of our knowledgeable mortgage advisers is strongly advisable.

Ready to compare rates for free and take advantage of a free, no-obligation chat with a broker who specialises in bad credit? Get started here.