Debt Relief Order Mortgage

A Debt Relief Order (DRO) is one of the most common forms of insolvency in England and Wales, but it does not permanently prevent you from getting a mortgage. The key factors are how long ago the DRO was discharged, how you have managed your finances since, and which lenders are willing to consider applicants with a DRO history. This guide covers what you need to know about getting a mortgage during and after a DRO.

What Is a Debt Relief Order

A DRO is a form of debt relief for people who owe a relatively small amount, have few assets, and have no realistic way of repaying their debts. It is administered by the Insolvency Service and lasts for 12 months (the moratorium period). During this time, creditors cannot chase you for the debts included in the order, and at the end of the 12 months, those debts are written off.

To qualify for a DRO, you must meet the following criteria:

• Total qualifying debts of £50,000 or less
• Assets worth £2,000 or less (excluding a single vehicle worth under £4,000)
• Disposable income of £75 per month or less after essential living costs
• You must live in England or Wales, or have lived or run a business there in the last three years
• You must not have had a DRO in the previous six years

There is no fee to apply for a DRO in England and Wales. Applications are submitted through an approved debt adviser, such as those at Citizens Advice or StepChange.

How Long a DRO Stays on Your Credit File

A DRO remains on your credit file for six years from the date the order was made. It does not disappear when the 12 month moratorium ends. During those six years, the DRO is visible to any lender that runs a credit check, and it will affect your ability to borrow. After six years, the DRO is automatically removed from your credit file.

Can You Get a Mortgage During a DRO

No. During the 12 month moratorium period, you are legally restricted from obtaining credit of £500 or more without disclosing the DRO to the lender. In practice, no lender will approve a mortgage application while a DRO is active. You must wait until the moratorium period has ended before applying.

Waiting Periods After Discharge

Once the 12 month moratorium ends and the DRO is discharged, lender attitudes vary widely. Here is a breakdown of typical waiting periods.

• Discharged less than 1 year ago: Very few lenders will consider an application this soon. Those that do are specialist adverse credit lenders, and they will require a large deposit (typically 25% to 40%) and charge higher interest rates.
• 1 to 3 years after discharge: Around 14 to 22 lenders may consider your application, depending on the rest of your credit profile. Deposit requirements of 15% to 25% are typical. You will need to show clean credit conduct since the DRO ended.
• 3 to 6 years after discharge: More lenders become available, with around 40 potentially willing to consider your application. Deposit requirements ease to 10% to 15%, and interest rates move closer to mainstream levels.
• 6 or more years after discharge: The DRO drops off your credit file entirely. Over 55 lenders are available, and you may qualify for standard mortgage products at competitive rates, provided the rest of your credit history is clean.

How to Rebuild Credit After a DRO

Lenders want to see evidence that you have changed your financial behaviour since the DRO. Here are the steps that carry the most weight with underwriters.

• Register on the electoral roll: This is the simplest step and it confirms your identity and address for credit reference agencies.
• Open a basic bank account: If you do not already have one, a basic current account with a debit card establishes a banking relationship.
• Use a credit builder card responsibly: A credit builder credit card with a small limit, paid off in full every month, demonstrates reliable repayment behaviour. Even 12 months of consistent use makes a noticeable difference to your credit score.
• Avoid missed payments on any account: A single missed payment after a DRO can be more damaging than the DRO itself, because it suggests the underlying problems have not been resolved.
• Check your credit file for errors: Ensure the DRO is recorded accurately with the correct dates. Errors on credit files are common and can be corrected by contacting the credit reference agency.

Deposit Requirements

The closer you are to the DRO, the larger the deposit you will need. In the first year or two after discharge, expect to need 25% to 40%. As time passes and your credit improves, the deposit requirement drops. By the time the DRO falls off your credit file at the six year mark, you may qualify for 90% to 95% loan to value products if the rest of your financial profile is strong.

DRO vs IVA vs Bankruptcy for Mortgage Purposes

All three are forms of insolvency, and all three affect your ability to get a mortgage. Here is how they compare.

• Debt Relief Order: Lasts 12 months. Stays on your credit file for 6 years from the date of the order. Available for debts up to £50,000. No fee to apply. Mortgage applications can begin after the moratorium ends.
• Individual Voluntary Arrangement (IVA): Typically lasts 5 to 6 years. Stays on your credit file for 6 years from the date the IVA was agreed, or until completion if the IVA runs longer. During the IVA, you are unlikely to be approved for a mortgage. After completion, waiting periods are similar to a DRO.
• Bankruptcy: Typically discharged after 12 months, but stays on your credit file for 6 years from the date of the bankruptcy order. Some lenders treat bankruptcy more seriously than a DRO, which can mean longer waiting periods or higher deposit requirements. Specialist lenders may consider applications within 12 months of discharge.

The key difference for mortgage purposes is that a DRO is generally viewed as a less severe form of insolvency than bankruptcy, because the debt amounts involved are smaller. This can work in your favour when lenders assess your application.

Debt Relief Restriction Orders

If you breached the terms of your DRO, for example by obtaining credit without disclosing the order, or by disposing of assets, the Insolvency Service can impose a Debt Relief Restriction Order (DRRO). A DRRO extends the restrictions of the DRO for up to 15 years. Having a DRRO on your record is a serious red flag for lenders and will significantly reduce your mortgage options.

Frequently Asked Questions

How soon after a DRO can I apply for a mortgage?

You can apply once the 12 month moratorium period has ended and the DRO is discharged. Realistically, the best time to apply is at least one year after discharge, once you have had time to rebuild your credit. The longer you wait, the more lenders become available and the better the terms you can access.

Will a lender know I had a DRO if it has been removed from my credit file?

After six years, the DRO is removed from your credit file and most lenders will not be aware of it. However, some mortgage application forms ask whether you have ever been subject to insolvency proceedings. If asked directly, you should answer honestly.

Can I get a buy to let mortgage after a DRO?

Yes. The same waiting period principles apply to buy to let mortgages. Some specialist buy to let lenders may be willing to consider applications sooner than residential lenders, particularly if the rental income covers the mortgage payments comfortably.

Do I need to use a specialist broker?

It is strongly recommended. A broker with experience in adverse credit mortgages will know which lenders are most likely to approve your application based on the DRO discharge date, your current credit profile, and your deposit. Applying to the wrong lender wastes time and can leave unnecessary footprints on your credit file.

What if my DRO was due to circumstances beyond my control?

Lenders that specialise in adverse credit understand that financial difficulties can arise from job loss, illness, relationship breakdown, or other life events. Some lenders take a more sympathetic view of a DRO caused by circumstances rather than poor financial management. A broker can present your case in the best light and direct you to lenders that assess applications on individual merit.

Related guides: Bad Credit Mortgages | First Time Buyer Mortgages

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