Can I get a home loan with a part 9 debt agreement?
Estimated read time: 4 Minutes
Life is full of unexpected events that can result in financial strain. This can make meeting credit obligations difficult.
For some people, this may lead to entering a part 9 or 10 debt agreement to help get things back on track. If you’re in this situation, you could find getting a home loan difficult. If you’ve managed to discharge your part-9 debt agreement then some non-bank lenders such as Pepper Money may be able to assist.
What is a debt agreement?
A debt agreement is a legal arrangement for you to begin repaying the money you owe. These are often drawn up as an alternative to bankruptcy and are based on what you can reasonably afford to pay back. Your creditors (the entities you owe money to) must also approve the debt agreement for it to go ahead.
There are two types of debt agreements: A part 9 (often written as part IX) or a part 10 (part X) which form part of the Bankruptcy Act 1966. Whether you are eligible for a Part 9 or Part 10 agreement depends on your situation.
What's the difference between part 9 and part 10 debt agreements?
Part 9
Part 10
What to consider before entering a debt agreement
While debt agreements are often a preferable option to bankruptcy and could relieve financial pressure, they can still have serious implications on your ability to obtain future credit. If you’re planning on applying for a home loan, it’s important to understand what this means for you.
Before entering into a debt agreement, you should seek professional advice to understand your options. For a list of financial counsellors, visit the MoneySmart website or seek free independent advice via the National Debt Helpline – professionals deal with this all the time and will help you weigh up the options.
Does a debt agreement impact your credit score?
Yes - debt agreements will leave a mark on your credit file and be taken into consideration when a lender assesses you for credit. Typically, they’ll remain on your credit file for up to five years, but in some cases they could remain on your credit file for longer.
Your name will also be placed on the National Personal Insolvency Index (NPII). The NPII is a publicly available electronic record that registers personal insolvency proceedings in Australia. The NPII is a web service that allows anyone to conduct a search to see whether a debtor is currently, or has previously been, subject to provisions of the Bankruptcy Act 1966. Any record on the NPII will be present on your credit report, which is checked by credit agencies when they assess your credit applications. This could make it difficult for you to obtain credit in the future.
Getting a home loan with a Part 9 debt agreement
You can apply for a home loan and buy a house when you are under a debt agreement, but it may be difficult to get approval. Lenders consider a debt agreement as an ‘act of bankruptcy’ that shows you’ve had problems previously paying back loans, making you a higher risk applicant. Some non-bank lenders may consider your loan application, though it may result in a higher-than-average interest rate to compensate for the increased risk of your loan.
If your debt agreement is active, it may count as an outgoing expense, which would give you less income to pay the new loan back. If your debt agreement has finished, this will be viewed positively by the lender, but some lenders may still deny your application.
It’s important not to rush into applying for a mortgage and make too many applications for credit. All applications are recorded on your credit file as hard inquiries, which could inhibit your ability to borrow in the future due to a lower credit score, as it could be seen as a red flag by a lender.
How we may be able help
In some cases, we may be able to assist you in finalising a debt agreement or structuring debt consolidation into your home loan. However, if you're looking to purchase a property, you will need to be officially discharged from your debt agreement to be eligible for a home loan with Pepper Money. Learn more about looking for a mortgage after bankruptcy.
We understand real life happens. That’s why we have home loan options for people in your situation. As a non-bank lender, we consider multiple factors when assessing your loan application, not just your credit history.
When we talk to you, we’ll ask things like:
- Why did you get into a debt agreement?
- How new is the agreement?
- What was the life event that may have caused this?
- Is the life event still ongoing?
- Are you looking to settle or pay out your agreement soon?
- Have you been meeting all the obligations of the agreement?
These questions help us to understand your full story and help to work out a way forward. Just remember, all applications are still subject to our loan suitability and assessment criteria.
We believe a bad credit history doesn’t mean you shouldn’t be able to get a home loan. Our flexible loan options are suited to people in these situations - so if you’re looking to get a home loan after a debt agreement or after bankruptcy, speak to one of our friendly Lending Specialists on 137 377 or submit an enquiry online.
Contributor | Neil Culkin, Head of Credit and Settlements
Neil has a 20-year career in credit provision. At Pepper Money, he oversees the underwriting and credit control of all consumer finance loan applications. He is also responsible for updating lending policies and guidelines. Read more.
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Resources to help with credit issues
It can be tough to recover from a credit event. We've put some resources together to help you get back on-track.
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