Mortgage with a debt management plan
Even if you’ve had, or are currently in, a Debt Management Plan (DMP), there are plenty of mortgage options available. You may even be able to save money or raise a lump sum to clear the DMP.
Mortgages available when the Debt Management Plan (DMP) has been active for 12 months (with satisfactory payment history)
Mortgage with a Debt Management Plan – There are options available either in or after a (DMP)
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Can I get a mortgage with a Debt Management Plan (DMP)?
Yes, it is possible to get a mortgage while you have a debt management plan, but it may be more challenging.
A debt management plan (DMP) is an informal agreement between you and your creditors to pay back your debts at a reduced rate over a longer period of time.
Managing debts this way can be an effective way to get back on track financially. However, it will negatively affect your credit score. This will make it more difficult to be approved for credit in the future.
When you apply for a mortgage, the lender will look at your credit score and your overall financial situation, including your income, expenses, and existing debts. They will also consider the level of debt you have and how well you have been managing it. If you are on a DMP, the lender may see this as a sign that you have struggled with debt in the past and may be more of a risk. However, it does show a lender you have done something about it.
That being said, there are lenders who are willing to offer you a mortgage while in a DMP. You may need to provide additional documentation to explain the reason for being in a DMP and show that you have been making your DMP payments on time. The interest rate you are offered may also be higher than if you didn’t have a DMP.
You may also want to consider working with a mortgage broker who can help you find lenders who are more likely to approve your application.
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Mortgage with a DMP FAQ
Save up a larger deposit:
As with most bad credit circumstances, a larger deposit vastly increases your chances of getting your mortgage application approved. With a larger deposit, it means the amount you need to borrow is less, resulting in a lower loan to value (LTV) ratio. A lower LTV makes you a better prospect and less risky for a lender, meaning you’re more likely to get a better interest rate. This might not be plausible while in a DMP, as you’d be expected to use that money to go towards your debt. Once your DMP has finished and your debt is clear, you could consider using the money that would have gone towards repayments to save a larger deposit.
Like with all credit agreements repayment ability is a big factor. Having stable employment, or consistent employment in the same field helps boost your application and make you a more attractive borrower.
Keep up repayments:
Make sure you keep up all credit and DMP repayments. Missing payments can impact your credit score further and could risk your creditor taking further action. Keeping up your repayments can help show potential lenders that you can be a responsible borrower and over time will help repair your credit score.
Make sure you’re on the electoral roll. This will help lenders confirm your identity and address.
Close old accounts:
If you’ve got any old credit account that you’re not using, make sure you close them. Having many open accounts can negatively impact your credit score, so closing unused ones can help boost your score.
Keep track of your credit report:
There are three main credit reference agencies in the UK, Experian, Equifax and TransUnion. You can view your credit report online using these agencies. Your credit report shows you what lenders can see when they’re considering you for credit and keeping track of your report can help you better understand your credit and what influences it.
Avoid multiple credit applications:
If you’re looking for a mortgage with a DMP, you might struggle to find a mainstream lender that will accept your application and making several failed applications in a short space of time can further impact your credit report.
Going through a specialist bad credit broker like Clever Mortgages can help you find lenders that are likely to accept your application, sometimes accessing better rates and deals through the specialist lenders we work with.
Yes, even if you’ve had, or are currently in, a Debt Management Plan (DMP), there are plenty of mortgage options available. If you have enough equity in your home, you could look at a remortgage, allowing you to free cash tied up in your home and potentially raise a lump sum to clear your DMP. It’s unlikely highstreet lenders would accept an application with a history of bad credit, but our brokers work with specialist lenders who consider all applicants.
Remortgaging involves applying for a new mortgage to pay off your existing mortgage and move to a new lender. If you are in a debt management plan, it may affect your ability to get approved for a new mortgage because it shows that you have had difficulty managing your debts in the past.
Lenders may view you as a higher risk borrower, and you may be offered a higher interest rate or less favourable terms than if you were not in a debt management plan. Additionally, if you have missed payments on your mortgage or other debts, this could further impact your ability to remortgage.
However, your existing lender may offer you a new product when your current one is coming to an end.
It is important to consider your financial situation carefully before deciding to remortgage while in a debt management plan. You should speak to a mortgage advisor or mortgage broker who can help you understand your options and guide you through the process.
Getting a mortgage after being in a Debt Management Plan (DMP) can be challenging, but there are steps you can take to improve your chances:
- Check your credit report: Obtain a copy of your credit report and make sure that all the information is correct. If there are any errors or inaccuracies, contact the credit bureau to correct them.
- Rebuild your credit score: Start rebuilding your credit score by making sure that all your bills are paid on time. Avoid applying for credit cards or loans if you don’t need them, as this can negatively impact your credit score.
- Save for a deposit: Lenders are more likely to approve your mortgage application if you have a sizable deposit. Aim to save at least 5-10% of the property’s value, but the more you can save, the better your chances.
- Seek professional advice: Speak to a mortgage advisor who can help you understand the options available to you. They can also give you advice on how to improve your chances of getting approved.
- Choose the right lender: Some lenders specialise in lending to people who have been in a DMP. It is worth doing speaking to a mortgage broker such as Clever Mortgages who have experience in this.
- Be prepared to explain your DMP: Your lender will want to know the reasons why you were in a DMP and how you have taken steps to improve your financial situation.
Overall, getting a mortgage after a DMP can be challenging, but it’s not impossible. By taking the above steps, you can improve your chances of getting approved for a mortgage.
If you own your home, a Debt Management Plan (DMP) will not directly affect it, as a DMP is an informal agreement between you and your creditors to repay your debts. However, there are some indirect ways in which a DMP can impact your home ownership:
- It may be possible to access this equity to consolidate your debts. This can be a viable option if you’re struggling to make your DMP payments or would prefer to consolidate it in full. However, this will reduce the amount of equity you have in your home.
- Mortgage payments: If you have a mortgage, your monthly payments will need to be factored into your DMP budget. As a priority debt, your mortgage needs to be paid first, not paying your mortgage can lead to repossession.
- Credit score: Being on a DMP can negatively impact your credit score, which can make it more difficult to obtain credit in the future. This could impact your ability to take out a another mortgage or remortgage your home. However, most lenders allow you to switch to a new deal with them, without a credit check.
It’s important to remember that a DMP is just one option for managing your debts, and it’s not always the best option for everyone. If you’re concerned about the impact a DMP may have on your home ownership, it’s worth seeking professional advice from a debt advisor or a mortgage broker.
A DMP (Debt Management Plan) doesn’t actually get recorded on your credit report as a sole record, but any credit issues surrounding it will be. It’s likely any missed payments and defaults you’ve had leading up to your DMP would have caused a drop in your credit score, additionally the reduced repayments you make during your DMP will also make an impact. Missed payments and defaults stay on your credit report for 6 years, but accounts you have with creditors included in your DMP could be marked with a ‘DMP flag’- this shows that creditors are aware of the lower payments and have agreed to this.
When you enrol in a DMP, you typically work with a credit counselling agency to create a repayment plan for your debts. This involves making regular payments to the agency, which in turn pays your creditors. If your creditors report your participation in the DMP to the credit bureaus, it will appear on your credit report and potentially impact your credit score.
However, enrolling in a DMP and making timely payments can actually have a positive effect on your credit score in the long run, as it shows that you are taking steps to manage your debts responsibly. On the other hand, if you miss payments or fail to follow the terms of the plan, it could have a negative impact on your credit score.
It’s important to understand that a DMP is not a quick fix for debt problems, and it may take time to rebuild your credit score after completing the program. If you’re considering a DMP, it’s important to weigh the potential impact on your credit score against the benefits of getting your debts under control.
The amount you can borrow after having a DMP (Debt Management Plan) will depend on several factors, including your income, credit score, debt-to-income ratio, and the lender’s requirements. Having a DMP may impact your ability to borrow money, as it can negatively affect your credit score and debt-to-income ratio.
During a DMP, you make reduced payments to your creditors, which means that your debts are not being paid off as quickly as they would be if you were making the full payments. This can result in a lower credit score, as your credit utilisation ratio may be higher than it would be if you were paying off your debts in full. As a result, lenders may view you as a higher risk borrower and may offer you less favourable terms or require a larger down payment.
However, it’s not impossible to borrow money after a DMP. You may be able to get a personal loan, credit card, or mortgage, depending on your individual circumstances and the lender’s requirements.
You may want to work with a mortgage advisor or credit counsellor who can help you understand your options and make informed decisions about borrowing money after a DMP.
The specific amount you can borrow will depend on your individual circumstances, such as your income, expenses, and debt levels, as well as the lender’s requirements. It’s important to be realistic about your ability to repay the loan and avoid taking on too much debt, especially if you’re still working on paying off your existing debts through your DMP.
If you’re a homeowner and want to free up equity without leaving your current mortgage, you could consider taking a second-charge mortgage against your home to free up equity tied in your property. This could allow you to access a lump-sum to clear your DMP while keeping your current mortgage intact.
As second-charge mortgages are secured loans, the risk isn’t as great to potential lenders, increasing your chances of approval and could even gain you access to better deals and products.
How do I decide on the best route?
It is important before making a decision to consider the benefits and costs of each mortgage product. Clever mortgages take the time to understand your requirements and future plans to ensure you receive best advice tailored to your needs.
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There are many reasons why you may want to consider a remortgage, even if you have bad credit. You may just need a better interest rate, which could save you money each month or give you security of payment. Perhaps you wish to raise additional funds to consolidate debts or make improvements to your home.
Whatever your need, we have access to a wide range of products and could help to secure you finance no matter what your circumstances.
Allowing one couple to remortgage even though one of them was in a Debt Management Plan (DMP)
At Clever Mortgage we helped them to:
Settle Mrs B’s DMP with the new mortgage Exit their current lifetime tracker mortgage and onto a better deal Secure a fixed rate of 2.10% Save almost £500 each month on mortgage and debt repayments
We were approached by Mr and Mrs B as they wanted to consolidate their debts by taking out a new mortgage on their home. Mrs B was in a DMP at the time though and her husband had previously been in an Individual Voluntary Arrangement (IVA).
Mr and Mrs B were unsure as to whether they could remortgage so we were pleased to help them not only consolidate their debts and reduce their monthly payments, but also get on the right track to rebuilding their credit scores.
|Previous Mortgage||£61,000||£490||1.25%||Lifetime tracker||12 years|
|Previous secured loan||£43,000||£436||10%||SVR||12 years|
|Previous unsecured debts||£44,300||£657||Various||Various||Various|
|New Mortgage||£150,000||£1097||2.10%||5 year fixed rate||13 years|