Does a debt management plan affect a mortgage application? Can I get a mortgage with a debt management plan? We are getting similar enquiries from our customers for some years. So, as expert mortgage brokers, we will discuss the effect of the debt management plan on mortgages in-depth in this article.
What is Debt Management Plan(DMP)?
A debt management plan is a specific agreement between an individual and his/her creditors to pay off all the debts. Debt management plans are used under two circumstances:
- If a borrower is only able to pay a certain amount to the creditors, every month.
- If the borrower has debt problems, and won’t be able to make monthly repayments in a few months.
Mortgage On Debt Management Plan
Getting a mortgage on a debt management plan is a complicated process because of different lending criteria from mortgage lenders. If you have taken out a DMP to pay off your ‘non-priority’ debts such as payday loans, credit card bills or personal loans it may affect your mortgage application. However, if you have a debt management plan which is specifically designed to pay off your mortgage then there are some better chances to get your mortgage approved. There are many other factors for a mortgage application to be approved by a bank or building society such as credit ratings, financial commitments, deposit amount etc. But if you have a debt plan that can pay off your mortgage, then there is no reason why you should not apply for a mortgage.
Can you get a mortgage with a Debt Management Plan?
Yes, you can get a mortgage with a debt management plan but you may need to consider other factors too. For example, if you have a current unsatisfied debt management plan, some high street lenders won’t approve your mortgage application. Mortgage lenders want to know if you can afford to pay the mortgage repayments and could also contact your DMP provider for satisfactory conduct while paying monthly payments. Also, it’s worth noting that the type of mortgage that you will get depends on the length of time that you have on your debt management plan. The longer you have been on a debt management plan, the more likely it is that you’ll be offered a fixed-rate mortgage. A shorter-term means that you’re more likely to get a variable rate mortgage.
How does a debt management plan work?
The main purpose of a debt management plan is to help people who cannot manage their finances properly. The debt management plan allows them to take control of their situation and start making monthly repayments towards their debts. This way they are able to reduce the interest rates on their debts and eventually clear their debts within a specified period of time. It’s important to note that debt management plans are not the same thing as bankruptcy. Bankruptcy is when someone declares themselves bankrupt and stops repaying any money to anyone. Debt management plans allow you to continue to make regular repayments to your creditors, even though you are unable to pay the full amount at once.
How long do debt management plans last?
A debt management plan can last between 12 months and 5 years depending on how much money is being repaid each month. Most people use a debt management plan for around 3 years before they declare bankruptcy. You can find out more about this by contacting yourlocal Citizens Advice Bureau (CAB).
What happens after I’ve finished my debt management plan?
Once your debt management plan has ended, you will still need to keep up with your repayments. In fact, you will probably be required to make extra repayments in order to cover the cost of any fees associated with your debt management plan. Some people choose to continue using a debt management plan until all their debts have been cleared. Others decide to go back to paying off their debts straight away.
What are the deposit requirements for the mortgage with a debt management plan?
If you have a debt management plan going on, you may need to pay a higher deposit for your mortgage application. Some lenders may ask for 15% of the deposit because of your DMP. However, most lenders will accept 10%. Remember that the lender needs to see that you can afford to pay back the loan, so don’t worry if you think that you might struggle to meet the repayments. It is always better to consult a specialist mortgage broker for your application while on DMP.
How can DMP affect my credit ratings?
A DMP could help you to pay your debts but if you are still keeping yourself in debt, it could cause greater credit issues such as missed or late payments, defaults, bankruptcy or CCJ. You can still get a mortgage with these issues, but you may need to contact a mortgage broker for your application.
We have also mentioned some tips for getting a mortgage with defaults, you can read them in our blog section.
Income and Affordability Criteria
The income and affordability criteria could differ in specialist mortgage providers because of DMP. For example, high street lenders may have different rules for DMP as compared to some mainstream lenders.
In the nutshell, some lenders could provide you with a mortgage which is 4 times of your annual income some could be more lenient to provide with 5 times your annual income. As it all depends on your income and mortgage affordability criteria set by the mortgage lender. For income and affordability checks, mortgage lenders will look for the following:
- Your total household income including your partner’s income
- Your total household expenditure
- Your current financial position
- Your ability to service the loan
- Your personal circumstances
- Your family size and lifestyle
- Your employment history
- Your savings and investments
- Your property portfolio
- Your debt profile
- Your previous experience of borrowing
- Your credit score
There are also other factors that could impact your mortgage application with a debt management plan. You should check what the criteria are for your specific mortgage provider. If you want to apply for a mortgage with a DMP, we recommend that you speak to a specialist mortgage broker. They will be able to advise you on whether or not you qualify for one.
Is there anything else I should know about debt management plans?
There are many other things that you should consider before applying for a mortgage with a debt management scheme. We have listed some of the key points below:
You must be 18 years old and above
You must be employed
You must have been working for at least 6 months
You must have a valid bank account
You must be a UK resident
You must have an active mobile phone number
You must be able to prove your identity
You must be able and willing to make monthly payments
There are also some factors that you can look for while applying for a mortgage with a debt management scheme.
Next Steps – Debt Management Plan Mortgages
Getting a mortgage with ongoing DMP is becoming difficult every day in the UK. The reason is that there are many people who want to buy a property and start on the property ladder but have an adverse credit score.
So, if you are one of these people and you want to get a mortgage with a DMP scheme, then you can contact our team of expert mortgage brokers who can help you find a suitable mortgage deal.
FAQs – Debt Management Plan Mortgages
Can I get a debt management plan mortgage?
Yes, you can but you may need to contact specialist lenders. As mainstream lenders won’t approve your mortgage because of credit history issues. It is better to coordinate with a bad credit mortgage broker who can help you to connect with specialist lenders.
If you don’t know about your credit report, you can check your credit report with the link.
What are payday loans?
Payday Loans are short-term loans given to borrowers when they face urgent cash needs. These loans are designed to give instant access to money so that borrowers do not miss any important bills and improve bad credit scores. Payday loans are usually taken out as a last resort when borrowers cannot borrow from their friends and relatives.
What is non-priority debt?
Non-Priority Debt refers to debts that are not included in your priority list. This means that you can pay off this type of debt without having to worry about it affecting your overall credit records.