My partner and I are half way through a debt relief order (DRO) but my grandfather has decided to sell his house and has said he would consider giving us £25K to use towards a deposit on a house.
If he does decide to give us this money we would have to cancel our DRO and would use half of that money to clear our debts. It will leave us with around 15K to use as a deposit. So my question is if we cancel our DRO's and pay off the debts in their entirety how soon would our credit ratings increase enough for us to be granted a mortgage?
We have a ccj each from 12 months ago and have had some of these debts for several years. We were previously on a debt management plan for five years so all of the debts would technically have been defaulting each month as we were only paying a minimal amount to them via the debt management plan.
I'm just wondering what the best thing to do is: if we accept the money and pay off our debts will our credit rating increase within a few months and would we be eligible for a mortgage soon?
Or is it best not to accept the money yet and just let the DRO complete but then have to wait for our credit rating to recover from the DRO in a few years?
Any help or advice would be very much appreciated.
Unfortunately we cannot advise on whether to settle the DRO early, but can confirm it is highly likely you will require a 30% deposit for your future purchase.
Time does heal but the combination of Covid, lending in Scotland and the DRO means it is likely you will require at least 25% for the coming few years.
All the best
Thanks for the reply.
Sure I understand you can't advise directly on whether to cancel or not.
I guess my query is more wondering about how credit ratings work regarding DRO's and mortgages. For example is someone likely to be accepted sooner for a mortgage with a cancelled DRO and having paid off said debts, or just waiting for a finished DRO and building credit up over a few years?
It is genuinely on a case specific basis, but most lenders will either want to see 3 years from satisfaction of a DRO or 6 years from registration whichever comes first. In your case that is likely to potentially be at a fairly similar time.
A deposit of 25%-30% would mitigate this now.
Thanks for this, I thought this might be the case. Either way I guess we are looking at waiting for a few years.
I wonder if a guarantor mortgage might be an option for people with very poor credit scores. My Dad owns a house and has a good score and may be a guarantor for us. Do you know if guarantor mortgages still require people to have a certain level of a credit rating?
A guarantor mortgage wont help I am afraid, but if he wanted to raise funds to gift to you in order to increase your deposit then this could potentially work.
Thanks for your help