Can you get a mortgage with a DMP?
Getting a mortgage with a DMP ( debt management plan) is certainly possible. A debt management plan will not stop you from getting a mortgage as there are mortgage lenders who will certainly lend to you. How much they will lend to you and how much mortgage deposit they may require will depend on the particular mortgage lender.
As debt management plans make getting a mortgage a bit harder you should consider seeking advice from a bad credit mortgage broker.
Your particular debt situation could also affect if you could get a mortgage at all.
Usually, you will be more likely to get a mortgage with a DMP after 12 months have passed since you began the debt management plan.
What is a DMP?
A debt management plan is an agreement between you and anyone you owe money to. It is usually used as a way to get debtors to pay back on low priority credit such as credit cards, personal loans, mobile phone contracts etc.
To be eligible for a DMP you must be able to make the repayments to the DMP as well as your essential living costs such as a mortgage, rent, car insurance etc.
DMPs are set up by practitioners who act as a middleman between you and your creditors. The practitioner arranges the DMP agreement, you pay them the monthly payment and then they pay the creditor.
Some DMP practitioners take a cut whilst others are free. Some free DMP practitioners include [step change](https://www.stepchange.org/) and [the national debtline](https://www.nationaldebtline.org/)
Unlike an IVA – or Individual Voluntary Arrangement – with a DMP the interest on your debt is not automatically frozen and because repayments are smaller than they would be without the DMP, clearing your debt can take more time.
One thing to be aware of is that you can cancel the arrangement at any time. This is because DMPs are not legally binding and therefore you are under no legal obligation to enter into such a plan.
Will debt management plan stop me getting mortgage?
No, your ability to get a mortgage with a debt management plan (DMP) will depend heavily on a few things including:
Your credit score: You are more likely to have a negative credit score if you are on a debt management plan. This could be due to you missing or defaulting payments which eventually led you to need a debt management plan.
When you have a DMP ( Debt management plan) this will more likely be recorded on your credit file as you make reduced payments towards your debt rather than the payments you should be making. This means any third party looking at your credit file will be able to tell that you are on a debt management plan.
The main issue with having a DMP (debt management plan) and getting a mortgage is that a DMP will reduce the number of mortgage lenders available to you, the best mortgage deals on the market and this means you could potentially be paying more in interest if you are eligible for a mortgage with a DMP.
If your credit score is low then you need to build credit by following tips on how to improve your credit score and history.
Most lenders will accept a minimum credit score as part of their lending criteria and will not lend to borrowers who have:
- Who are not on the electoral roll
- Individual voluntary agreements
- County court judgements
- Loan defaults etc
The other issue with having a DMP (Debt management plan) and trying to get a mortgage is that a DMP may make you ineligible for other government schemes such as :
- Lifetime ISA- gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA- gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
Your mortgage deposit: If you are currently using a debt management plan then it is very likely that you dont have enough money to save a mortgage deposit. In this case, the government schemes above may be able to reduce the mortgage deposit needed to 5%.
When looking to get a mortgage with a DMP it is likely that most mortgage lenders will require you put a bigger mortgage deposit down.
The bigger the mortgage deposit you put down the higher the range of mortgages you are eligible for with a DMP will increase.
If you have a big enough mortgage deposit then speaking with a bad credit mortgage broker to see what mortgages you may possibly be eligible for with a DMP and if you should use the mortgage deposit to pay off your debts or if you should use it to get on the property ladder. This is a very important point which should be given consideration.
Getting a mortgage with a DMP will mean a low loan to value(LTV) as the mortgage lender looks to minimise their risk.
How much debt you have: Mortgage lenders don’t mind you having a bit of debt along with your mortgage but too much debt may mean you could potentially find it hard to deal with all your credit obligations.
Most mortgage lenders who offer mortgages with DMP will have a maximum cap on the amount of debt you could have before they will give you a mortgage.
The mortgage lender will look into your mortgage affordability with all the debts you have to see if you could comfortably repay both your mortgage and your debts in the case interest rates rose on your mortgage.
The mortgage lender may be able to add your debts to your mortgage so you only make 1 monthly repayment per month but you should seek advice from your mortgage broker about this as it may not necessarily be useful in your situation.
Can you remortgage with a DMP?
Remortgaging could be a good way to release some equity in your home to repay some of your debts or reduce your monthly mortgage cost by getting a cheaper mortgage.
If you currently have a DMP or had one within the last few months then it is very likely to affect your chances of getting a remortgage as most lenders might see you as risky and not creditworthy.
You may have a limited range of mortgage lenders willing to lend a mortgage to someone with a DMP and little or no access to the best interest rates.
You may also not pass a credit check when seeking a remortgage as your credit score may have fallen. You should look to build credit and monitor your mortgage affordability before seeking a remortgage with a DMP.
In summary, it may be best to clear your debts before looking to get a mortgage although the mortgage lender will be able to see that you were previously on a debt management plan they will be more likely to lend to you as you are now debt free.
Improving your credit score will also help you get a mortgage with or without a DMP.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.