Mortgage with a Debt Relief Order (DRO)
An important element of the Debt Relief Order (DRO) is that it heavily restricts you financially and has a very strict eligibility criteria. This is because, if successful, your debt may be written off entirely so the DRO must prove that you absolutely cannot afford your debts and that you will be more financially capable once the DRO has ended.
The DRO works by freezing your debt for 12 months. If your ability to pay your debts has not improved after a year, your remaining debt is written off.
Owning your own home is an important dream for many people in the UK. This means that mortgages are a crucial issue when you are considering a debt solution.
Just because you are currently in a difficult financial situation, doesn’t mean there isn’t hope for the future. There are a number of debt solutions you can consider for a variety of mortgage situation, but can a mortgage work with a DRO?
It is impossible to have a mortgage with a DRO?
For once, there is a quick and easy answer – no. You cannot have a mortgage with a DRO and you take out a mortgage while you have a DRO.
This is because the DRO is designed for people who do not have assets or equity that could settle their debts. Similarly, you must have debts less than £20,000 in England and Wales, or £15,000 in Northern Ireland. You also cannot own a car worth more than £1000.
If you did own a home, it is expected that you may be able to re-mortgage or downsize your home to repay your debts, and could, therefore, pay off your debts with another insolvency solution in the future.
Even if you currently have negative equity, having such a potentially big asset disqualifies you from having a DRO.
If you dream of taking out a mortgage, you cannot do this while in your DRO. But, don’t despair, your dream could still become a reality one day. A DRO lasts only for 12 months.
After this period of time, you are able to apply for a mortgage. It is worth noting, however, that your credit score is likely to be very low. This will both be a hangover from your previous debt problems, and because your DRO is placed on your credit report for a total of 6 years from its approval.
It is worth investing time into rebuilding your credit score before you take out a mortgage to increase your chances of having an affordable deposit and interest rate.