Mortgage after Debt Management Plan explained

Getting a mortgage after Debt Management Plan

Getting a mortgage once you’re out of your Debt Management Plan (DMP) can be a simple and stress-free process – contrary to what you might have heard elsewhere.

With the right help, you can get access to a range of competitive mortgage options that mean you’ll be able to move house or remortgage now, rather than waiting around years for your credit score to improve enough to get a loan from more typical lenders, like high-street banks.

If you’re looking to get a mortgage in the near future rather than waiting for your credit score to get better, then our team at Clever Mortgages can help make your dream move a reality. With years of experience in helping people with DMPs on their credit files get access to fair and affordable mortgage rates, why not speak to our team today and find out how we can help you?

Debt Management Plan and mortgages explained

What is a Debt Management Plan? 

A Debt Management Plan is an informal debt solution that enables you to make one affordable payment towards your debts each month, and is especially useful if you’re struggling to make your current payments towards your debts. In a DMP, your monthly payment will be reduced to a more affordable amount, allowing you to make more suitable monthly repayments and clear your debts over a longer period of time.

Your monthly payment will be split fairly between your creditors based on how much you owe each one, and because a DMP is an informal solution, your creditors can choose to opt out of the DMP at any time and pursue you for debt payments through other means if they wish. Your DMP will also remain on your credit file for six years after any defaults are registered against you or the final payment if no defaults are registered.

Can you get a mortgage after a DMP?

The good news is that you’ll still be able to get a mortgage after you’ve been in a DMP. Whilst you might not have access to some of the more competitive rates that are reserved for people with high-end credit scores, with our help you can still get a great deal on your mortgage relative to your situation.

We work with 100s of different lenders who are willing to look favourably on current or past poor credit scores, and as a result can get you a fair deal on your mortgage that simply wouldn’t be available to people who choose to go direct to mortgage providers.  

Will a DMP affect my mortgage?

Having a DMP on your credit file means that you won’t be able to get the best deals on the market, and it’s unlikely bigger lenders like high-street banks will lend to you. 

If this is something you’re willing to accept, however, then it’s the only tangible way in which your mortgage will be affected by a DMP. Our expert team can ensure that you still get access to the finance you need, but it won’t be available at rates reserved for people with better credit scores.

If you’d rather not do this, then the alternative is to simply wait for your credit score to improve over time. By making regular payments on time and in full, and managing your money carefully, you can ensure that eventually your credit score will have improved to an extent where better rates become available once again. The only problem is that this can often take years to accomplish, and isn’t really a viable option if you’ve got your heart set on moving in the near future.

Mortgage Advice

How much can I borrow?

How much you can borrow will depend upon criteria such as your annual salary, your current outgoings, your credit rating and any other income you might have. To make things easy, we’ve created our own easy-to-use mortgage calculator that can show you how much you’ll be able to borrow.

How long will it take to apply for a mortgage?

Whilst it usually takes between two weeks and a month for an application to be processed, due to COVID-19 restrictions we’re finding that mortgage lenders are taking up to a month longer than usual to accept mortgage applications. During this time your mortgage lender will take the time to review your application, survey your new property and underwrite your mortgage application.

Repayment vs Interest-only mortgages

It’s also very important to consider the type of mortgage you want to go for. There are two main options to choose from: repayment and interest-only.

A repayment mortgage is what most people think of when they imagine getting a mortgage; a loan is taken out in order to buy the house, and a monthly amount is paid back to the lender over a period of (usually) 25 years. Once this has all been paid back, the mortgage owner will own their house outright. 

Interest-only mortgages work somewhat differently to this.

Instead of paying back a monthly sum which reduces the balance of the mortgage as well as covering any added interest, which is what a repayment mortgage does, an interest-only mortgage doesn’t actually pay back any of the money that’s been borrowed. With an interest-only mortgage the monthly payment simply pays back any interest that’s been accrued on a monthly basis.

The total balance of the mortgage still has to be paid back at the end of the mortgage term, of course, and this is usually done via a lump sum or some form of repayment vehicle.

There are benefits and drawbacks of both type of mortgage, so if you’re unsure of which is the best type for you one, of our brokers will be more than happy to go over things with you in detail to help you find out which mortgage you should opt for.

Repayment vs Interest-only mortgages

It’s also very important to consider the type of mortgage you want to go for. There are two main options to choose from: repayment and interest-only.

A repayment mortgage is what most people think of when they imagine getting a mortgage; a loan is taken out in order to buy the house, and a monthly amount is paid back to the lender over a period of (usually) 25 years. Once this has all been paid back, the mortgage owner will own their house outright.

Interest-only mortgages work somewhat differently to this.

Instead of paying back a monthly sum which reduces the balance of the mortgage as well as covering any added interest, which is what a repayment mortgage does, an interest-only mortgage doesn’t actually pay back any of the money that’s been borrowed. With an interest-only mortgage the monthly payment simply pays back any interest that’s been accrued on a monthly basis. 

The total balance of the mortgage still has to be paid back at the end of the mortgage term, of course, and this is usually done via a lump sum or some form of repayment vehicle.

There are benefits and drawbacks of both type of mortgage, so if you’re unsure of which is the best type for you one, of our brokers will be more than happy to go over things with you in detail to help you find out which mortgage you should opt for.

Could I get a product transfer?

If you’re still in your DMP and are coming towards the end of your current product period, say a fixed rate, then you might be eligible for something called a product transfer.

This is where you get a new deal (such as a fixed rate) with your current lender at the end of your mortgage product period, instead of moving to what could be a higher standard variable rate. Because this often isn’t subject to credit score, it’s something you can do whilst you’re still in a DMP as opposed to remortgaging or getting a new mortgage.  You are normally not allowed to borrow any additional funds with a product transfer.

At Clever Mortgages we can help arrange a product transfer for you – just get in touch and we’ll see what options are available for you.

How much can I borrow?

You might have never had a mortgage before, or your financial circumstances might have recently changed. In either case, you might be unsure how much you can borrow for a mortgage. Our tool can help work this out based on your salary, combining your partner’s salary if it’s a joint mortgage.

How much can I borrow for the mortgage?

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Mortgage calculator

See how much your mortgage payments could be with our live mortgage calculator

Rates may differ based on your circumstances

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The mortgage application process

What do I need to apply for a mortgage?

Before you apply for a mortgage, you’ll need to get a few documents prepared to support your application. These include:

  • Identification – this can include a passport or driving license
  • Payslips from the last three months
  • Monthly outgoings
  • Utility bills
  • Proof of any benefits you’ve received
  • Current account bank statements from at least the last three months
  • P60 form from your employer
  • At least two years’ worth of account statements from an accountant if you’re self-employed

The application process

Here’s a quick, step-by-step guide to the mortgage process.

Step 1

Complete our online enquiry form and supply your initial details. We will contact you to discuss your requirements in more detail. We can determine how much you can borrow before moving forward.

Step 2

After we’ve taken a look over all of your details, we’ll scour the market for the best mortgage deals possible for your situation. We’ll then discuss any mortgage deals that match your criteria.

Step 3

If you’re happy with the mortgage we’ve recommended, the next step is getting a mortgage agreement, commonly known as an AIP or ‘Agreement in Principle.’ This essentially means that the mortgage provider agrees to lend you the money subject to final checks and approval of your chosen property.

Step 4

Once your AIP is accepted, the next step is to formally apply for the mortgage. If you’re applying through us, we’ll do this part for you. The mortgage provider will then conduct a formal valuation on the property to make sure it’s worth what you think it is or have offered to buy it for.

Step 5

If the property value is sufficient and after checking over the documentation you’ve provided, the mortgage lender will make a formal mortgage offer to you. Once you’ve accepted the mortgage offer, the solicitor can finalise all the legal work and arrange a completion date.

Step 6

You move into your new home or if a remortgage you will have switched lender and may have funds in your account for home improvements. You then begin making your mortgage repayments. Congratulations!

Why use a mortgage broker?

Mortgage brokers can help you find the best deals on the market – not just from one lender. With a broker you’ll get:

  • Valuable knowledge, through years of experience helping customers to find mortgages
  • An improved chance at finding a mortgage, some mortgages are only available through a broker
  • Help with the application process, as usually just one application can be used across various lenders
  • Advice on how to improve your chances, for instance getting a guarantor or applying for a joint mortgage

As a mortgage broker, we do all the hard work for you; once you’ve provided all of the necessary information mentioned above, we’ll get to work on finding the right deal for you, and keep you updated throughout every step of the process.

On top of making things easy for you, we’ll also be able to use our experience and relationships in the industry to get the best deal possible for your situation. We work with hundreds of different lenders, and as a result can get prime deals on mortgages that just aren’t available if you choose to go direct – this is especially useful if you’ve got bad credit, as this means that getting a good deal on your mortgage is usually even more difficult if you go direct.

We can also advise on things that you can do to help improve your chances of getting an improved deal, like opting for a joint mortgage or finding a guarantor.

So what does all this mean?

Essentially, you’ll be able to get a better deal in a shorter space of time, and with a lot less work and hassle from your end.

Ready to apply for your new mortgage?

Whatever the reason is that your credit score has been negatively affected, be it a CCJ, an IVA, arrears or something else, we believe that you should still be able to get the mortgage you deserve. We’ve helped thousands of people with poor credit scores get access to mortgage finance, so why not give us a call and find out how we could help you?

To find out what mortgages are available to you today, call our team on 0800 197 0504 – our opening hours are 9am to 5:30pm, Monday to Friday. Alternatively, just complete our simple online form to arrange a call back at a time that suits you.

Speak to a broker

Fran Jones

Fran is a specialist mortgage broker, whose been working for Clever Mortgages for 7 years and has over 8 and a half years’ experience in helping customers with bad credit.

Call us on: 0800 197 0504

About Clever Mortgages

We specialise in assessing an individual’s situation, and finding the right mortgage solution for them. We can help:

  • With remortgages, buy-to-let, and first-time buyers mortgages. We have experts who cover these areas
  • Even if you’ve got bad credit – we help people every day with a variety of credit histories to find the right mortgage
  • With applications, as we’ll take the hassle away. We require your details once and we’ll know the best lenders for your circumstance
  • Our team know the lenders that are most likely to say ‘yes’, and give you the best rates

What should I do next?

  • You enquire online with us today or request a call back
    Our simple form takes a couple of minutes to fill in, this gets the ball rolling
  • One of our experts will give you a call to find out more about your situation
    We have experts in remortgaging, who focus solely on helping customers save money
  • We do all the hard work for you
    We search the market for the trusted lender that’s right for you
  • Our expert will get back in touch
    We can guide you every step of the way, and we’ll always keep you up-to-date with progress

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How to increase chances of getting a mortgage with bad credit?

There are steps you can take to help increase your chances of getting a mortgage with, or after bad credit is registered against you.

Keep up repayments:

Make sure you keep up all credit payments and any arrangements to pay up to date. Missing further 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 are back on track and over time will help repair your credit score.

Avoid multiple credit applications:

If you’re looking for a mortgage with bad credit, 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 impact your credit report.

Close old accounts:

If you’ve got any old credit accounts 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.

Employment:

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 track of your credit report:

Whilst Clever Mortgages can run a credit report for you, 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.

Save up a large deposit:

As with most bad credit circumstances, a large deposit vastly increases your chances of getting your mortgage application approved. With a large deposit, it means the amount you need to borrow is less, resulting in a lower 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.

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.