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Mortgage Advisor & Director
What is a debt relief order?
A debt relief order (DRO) is one way to deal with your debts if you:
- Owe less than £20,000
- Are not a homeowner and do not have assets of value
- Do not have much spare income
With a debt relief order, you don't need to make payments towards the debts that are included and your creditors cannot force you to pay off debts. Debt relief orders typically last for a year, before the debts are written off.
You need to speak to registered DRO adviser to help you complete the application before it is issued to the official receiver.
What debts are excluded from a debt relief order?
There are a number of debts that you will still have to pay even with a debt relief order. These include:
- magistrates court fines and confiscation orders related to criminal activity
- child support and maintenance
- student loans
- social fund loans
- compensation for death and injury
These debts will not count towards the £20,000 limit. Your DRO adviser will be able to clarify which debts you will still need to meet.
Can I get a mortgage with a debt relief order?
Due to restrictions under debt relief orders, all lenders will require that you have discharged the DRO before making a mortgage application. This is because you are not allowed to borrow more than £500 for 12 months following the discharge of the DRO.
The majority of lenders will require the DRO to have been discharged six years before making a mortgage application. There are, however, a number of specialist lenders who will consider your application before the six years are up.
If you are looking to make a mortgage application within six years of discharging a DRO, we would recommend engaging an experienced broker. They will help you to make the right application to the right lender, avoiding the scenario where you are rejected for a mortgage, and your credit record takes a further blow.
Getting a mortgage with new credit problems following a DRO
If you have any new issues on your credit record following the discharge of a DRO, potential lenders will want to see a list of the debts that were included in the DRO.
Having new credit issues will be taken seriously by potential lenders, who may be concerned that you will get into financial difficulties again and are not a credible borrower.
How can I improve my chances of getting a mortgage after a DRO?
Improving your credit rating will help your chances of securing the best deal on your new mortgage. As credit agencies typically update their information once per month, this takes some planning, so it may take a few months to improve your score.
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.
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.
How can I get a mortgage after a DRO?
As a specialist mortgage product, it is important that you engage a professional mortgage advisor to give you the best chance of approval and with the best rates.
At Teito, our experts have helped many people with bad credit to find their perfect mortgage. We appreciate that for those with past or existing financial difficulties, applying for a mortgage can be challenging. Start the process by completing our simple online form, and we promise to make your mortgage journey as stress-free and straightforward as possible.
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Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
Last updated 28 February 2024