Mortgages After a Debt Relief Order

You can get a mortgage after a debt relief order (DRO)

Getting a mortgage isn’t going to be possible until it’s discharged. You might already be aware it could be a criminal offence to borrow more than £500 when you are currently in a DRO without declaring it to the lender.

DROs are treated by most mortgage lenders like bankruptcy in this regard—they must be discharged, typically for a while, with only a handful happy to lend if the discharge was within the last three years.

You don’t have to wait forever

As we outlined in the summary, the headlines here are that if you’re currently in a DRO, you don’t have much of an option.

If you were discharged in the last 3 years, there are about 10 lenders, 38+ lenders if you were discharged 3-6 years ago, and 55+ lenders if you were discharged over 6 years ago.

Of course, some lenders may have a policy of never offering you a mortgage (even though it may drop off your credit file, you’ll be asked the question on the application, “Have you ever?” and it would technically be mortgage fraud to say no to this).

What deposit is needed?

As you might expect, lenders consider people with a historical DRO to be higher risk, which usually means a larger deposit and potentially higher rates and application fees.

Not always, of course, as there are some really competitive rates out there, particularly for those in the 3-6 year discharged bracket. Those who are 6+ years discharged may even be back competing with the high street through some of the specialist lenders.

As we’ve mentioned, rates are not sky high and often better than you might think, as the market is really busy and competitive.

As a rough guide, if you were discharged within the last 3 years, some lenders might demand a 30-40% deposit, others are happy with 15%, and if over 6 years, then you may well be looking at a 5% minimum.

How much can I borrow?

Having a DRO won’t directly limit the amount you can borrow, as this will mainly be based on your income and outgoings.

Most mortgage lenders will let you borrow 4.5 times your salary, but some go higher than this, up to 5 times or even 6 times your salary. Just remember that accessing the higher income multiples might be more difficult with bad credit, purely because you may have fewer lenders to choose from, so you’re really at the mercy of the range the accepting lenders are willing to offer at the time.

There are some lenders that occasionally have a tiered approach to this. For “prime” borrowers with no credit issues, you have access to a better range of rates with lower deposit, a “near prime” range for those that have light issues, and a “sub prime” (although they might not call it that nowadays) for those with heavy issues, where rates, fees and deposit requirements are usually higher, and they may also not be as generous on the maximum they’ll lend, all to help offset the increased risk.

Current credit history (since the DRO)

All mortgage applicants will be subject to a credit history “check”, and not necessarily a “score”. The flexible lenders tend not to score and rely more on the info in your credit file and application, meeting their policy.

As part of this, if you’ve had a DRO, lenders will often require a clean credit report with no bad credit issues since it ended. If there are, those that would have been happy are likely to at least want a very good reason, as repeat offenders for severe credit issues are often considered much higher risk still.

This doesn’t mean it’s not possible; there are plenty of people who have been in a life-changing situation that has impacted their finances more than once, but the underwriters (decision makers) will really want to get comfortable with the reasons behind it.

The actual process

So there are 2 places to get a mortgage: direct to the lender or through a broker.

If you want to get a mortgage directly from a lender, it’s going to be quite the challenge, given that most DRO-friendly lenders are broker-only.

It doesn’t mean that it is impossible, of course, but the process of finding one is a profession!

Your first step is to understand where you are right now, get your credit file (we like checkmyfile), make sure you know the dates of DRO registration and discharge, and check for any other credit issues on there.

Then you need to get online and Google hard, try to find the lenders who might consider you and research their policies. Of course, you can use our tool to help!

You want to make sure you shortlist plenty, so you can rank them in rate order and make sure you’re getting the best deal. Also, just be aware it’s not ONLY the DRO you need to satisfy – they’ll check your income and affordability, deposit source, the property type and all sorts – there are hundreds of criteria points and every lender is different.

For this reason, we’d recommend using a broker, just make sure they know the market well. Not all advisors are created equal, and some have little to no experience with bad credit mortgages. About 30% of customers we get approved have been declined elsewhere!

When you’re happy you’ve got one, the process is much the same with most lenders these days: Make an initial application for agreement in principle (AIP) > Once approved, full application and submit all your documents > the lender then values the property and assesses everything together > mortgage offer if all OK > then you complete once the solicitors have sorted everything with the lenders if a remortgage or the chain of buyers and sellers if you’re moving.

DRO-friendly lenders

As mentioned, there are approximately 55 DRO-friendly lenders out there (depending on your discharge date), all with different criteria. Understanding which of those you qualify for is really important before you start trying to make applications.

Jump over to the comparison tool to see more, or make an enquiry and one of the experts will give you advice on who will lend to you.

Some of these lenders include

• Pepper money
• Vida home loans
• The mortgage lender
• Kensington
• Bluestone
• Aldermore, to name a few…

Not all advisors are equal

We’ve been doing this for a long time now, and with our history of previously being an introducer network, having had the pleasure of building a network of advisors and working with over 100 different firms and maybe 500 different advisors over the last 10+ years – we have seen what works well, and what doesn’t.

We often highlight how huge the gap is between a general broker and a true specialist. Just like you wouldn’t ask your GP to perform heart surgery, you need someone who’s handled cases like yours hundreds, even thousands of times.

This is not because the average advisor is “bad”; most are really helpful and supportive.

It comes down to experience.

Think about it in general terms. The more you do something, the better you get at it. Well, most brokers spend their time helping the average borrower, working with the same top 10 high street lenders and not straying too far from that.

But we, of course, know that millions of people don’t have perfect credit or straightforward situations and need a bit more help finding the right lenders and the best deals. This spans a huge range of customer types, thousands of criteria points, and over 100 lenders; it’s a lot to keep in your head.

So we made it easier.

Why the OMA® Experts are great

At our firm, every bad credit enquiry is handled by a genuine expert, not a generalist.

We built this system because we’ve seen how much of a difference an experienced advisor makes to positive outcomes for people. The right advisor can be the difference between thousands of pounds in fees or interest and between approval and decline.

So you’ll work directly with our team of channel-experts, dedicated to the area of mortgages you need, which, of course, in your case, is bad credit.

We even help inexperienced brokers

And, as part of our mission to be the most loved for mortgages, EVEN IF you don’t choose us, we’re happy to work alongside your broker to make sure you’re getting the right advice. Just ask!

What is a debt relief order?

A debt relief order (DRO) is a temporary solution for debts worth £30,000 or more that the debtor is struggling to pay. It is arranged through special DRO advisors and is designed to tide the debtor over for a year unless their situation improves before then.

You will only qualify for a DRO if you don’t own a home or other substantial assets and have little disposable income.

How your DRO will impact different mortgage types

In most instances, you’re likely to be a first-time buyer (or a previous owner who currently doesn’t own a property), looking to buy a new property, join a partner on a mortgage, or perhaps (less common) buy a buy-to-let after a DRO without owning your own home.

That is with the exception of remortgages. You technically cannot get a DRO if you own a property (even if you have zero or negative equity), so it would be unusual to look to remortgage in this instance unless, for instance, you had inherited a property and wanted to refinance it.

Part of the eligibility rules for DROs is that you must not own a home, either mortgaged or mortgage-free, and whether you live in it or rent it out. Those in financial difficulty would likely be advised to go down the Debt management, IVA, or bankruptcy route.

Regardless, aside from the natural differences in available lenders considering these mortgage types, the restrictions and lenders will be the same.