Can I get a mortgage with a debt management plan (DMP)?
You may think that having a DMP, or completing one in the last few years, would prevent you from securing a mortgage deal. However, while a DMP may affect your ability to get a mortgage, it doesn’t mean you can’t get one.
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What is a Debt Management Plan?
A debt management plan (DMP) is a non-formal arrangement to repay debts like mobile contracts, credit cards, and loans. You must still be able to afford essential bills in order to obtain one.
You will need a DMP practitioner to help manage the plan. Some practitioners are free, while others may charge fees. Some free, well-known, DMP practitioners include StepChange, Payplan and National Debtline.
DMPs are not legally binding and can be cancelled at any time. However, if you fail to meet payments, it will affect your credit score.
Fill out our quick and easy Bad Credit calculator below. We only require a few details to see how much you may be able to borrow.
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Different bad credit situations need different mortgage solutions. We approach mortgages for your individual needs.
If you’re looking to get a secured loan or bridging loan with bad credit, you may face some hurdles. We can offer you the best advice for your situation.
Your affordability will always be assessed when it comes to mortgages. Read our guides to help you prepare for your next steps.
- What mortgage can I get on my salary?
- What stops you getting a mortgage?
- Can I get a low income mortgage?
- What to do if you can't afford a mortgage
- What is the longest mortgage term UK?
- A guide to bank statements for mortgage applications
- Obtaining a Joint Borrower, Sole Proprietor Mortgage
- Mortgage Affordability Calculator
Can I get a mortgage if I’m currently on a debt management plan?
Applying for a mortgage while on a debt management plan can be challenging, but specialist lenders are available to help. They consider factors like income, outgoings, and credit history. The severity and recency of credit issues impact your approval chances.
In all cases, the more severe and recent a credit event is, the more negative weight it will carry. So, for example, getting a mortgage after a CCJ that occurred 3 months ago will be a lot more difficult than if you had a few missed payments on a phone bill 2 years ago.
A debt management plan shows a willingness to clear debts, which can be a positive factor.
Getting a mortgage with a settled debt management plan
Like all other adverse credit issues, a DMP will stay on your credit record for six years, whether settled or not. It may make it harder to get a mortgage, but it’s easier if the DMP is settled.
To improve your chances of getting a mortgage after settling a DMP, check your credit reports for accuracy.
If any information is incorrect, contact the company responsible and ask them to update the status. They are not obliged to, but if they do it will be a great help. Make sure to copy the letter to the main debt reference agencies – TransUnion, Equifax and Experian.
Finally, you could consider taking out a credit card to rebuild your credit score by making timely payments and staying within your budget.
How much can I borrow if I have a DMP?
Your credit history will affect the ‘loan-to-value’ (LTV) ratio of a mortgage offer. The LTV is how much you can borrow compared to the market value of the property.
With an active or past DMP, it is unlikely you will be able to borrow at a high LTV ratio like 95%. Lending is likely to be restricted to 85% of the property’s value if you have a history of defaults or CCJs (County Court Judgements).
For example, if you want to get a mortgage on a property valued at £300,000, with an 85% LTV, you would need to borrow £255,000.
However, if you’ve had a history of less severe credit issues and a few years have passed since these events, you may be able to borrow more.
If you want to get an accurate idea of what you could borrow, get in touch and we will pair you with one of our expert advisers.
Mortgages with a DMP Information
Do I need a larger deposit if I have a DMP?
If you are currently in a DMP, it is very likely that you’ll need a larger deposit. This also applies if you have recently completed a DMP.
As mentioned above, a lender will typically allow a maximum of 85% LTV. Therefore, you will need a minimum of a 15% deposit. However, this is just a rough idea based on your circumstances.
If you are currently in a DMP, as well as a poor credit record, you may be required to provide a lot more.
If necessary, you might be able to try other courses of action to raise funds, such as selling or cashing in assets. The problem here is that if you do this, you may then be under pressure to use that money to pay off debts rather than contribute to a bigger deposit.
Can I remortgage with a DMP?
Yes, it is possible to do so.
Remortgaging with a DMP can help clear outstanding debts, but lenders will still assess you based on their criteria. Typically, they will require you to retain at least 25% equity in the property value to remortgage.
If your property has not increased in value or you have a high loan-to-value ratio, lenders may decline your application.
In either case, the lender will focus on affordability, so the size of your debts will be an important factor in their decision.
Specialists DMP mortgage lenders
Using a mortgage broker, especially a bad credit broker, can help you access specialist lenders who are more flexible with their lending criteria. Some of these lenders are not accessible to the public and can only be accessed through brokers or intermediaries.
These specialist lenders adopt a more flexible view of your finances than traditional high street lenders and will consider your overall circumstances rather than just your credit score.
They may be willing to lend to someone with a past DMP, but interest rates may be higher, and a larger deposit may be required.
If you want to know more about your options for obtaining a mortgage while you have a DMP on your file, don’t hesitate to get in touch with our team today and arrange a free, no-obligation initial consultation.
Mortgages with a DMP FAQs
- How long does a DMP need to be set up for to enable me to get a mortgage?
- Do all my payments to the plan need to be made on time and in full?
- Can I pay off my DMP early?
- How long does a DMP stay on your credit file?
This will depend on the individual lender’s own criteria, but it is typically 12 months. You’ll probably be asked to put down a bigger deposit and pay a higher interest rate on the loan.
Lenders always look at affordability when making mortgage offers. If you are already paying off other debts, then they will need to know how you will sustain mortgage payments on top of this.
A dilemma might arise if you have managed to save up a decent-sized deposit – should you use this to pay off your DMP and relieve your ongoing commitments, or it is best used as a down-payment on a property?
A specialist bad credit mortgage adviser will be best placed to tell you what to choose according to your specific circumstances.
This is very important, and the answer is a resounding yes.
A DMP is not legally binding and can be cancelled at any time, but doing so, or being late with payments, will further damage your credit rating.
This said, if you find yourself in financial difficulties because of keeping up with your DMP, then you should contact your DMP practitioner to see if they can help.
Yes, this is entirely possible, and usually desirable.
If your cash flow is healthy enough, or you have come into some money you can use, then you can settle the debts and close the DMP.
Also, if you have been in a DMP for six months or more, you are able to make lump-sum offers to your creditors. They may be willing to accept perhaps 50% of the amount owed if they get that cash immediately.
You can do this with one or more of your creditors, depending on what you are able to pay.
The DMP itself will not appear on your credit record, but the debts still outstanding will.
Creditors paid through a DMP might put a note to this effect on the report, and the accounts that are still technically in arrears will still show as such until the fall out of the six-year scope of a credit check.
A DMP will also need to be disclosed as part of any mortgage application, no matter the status of debts it covers on your credit file.
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