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Mortgage with Debt Management Plans

Can I get a mortgage with a debt management plan?

Pete Mugleston

To find out exactly what your eligible for and at what rates please or give us a call on 0800 304 7880.

A growing number of people are asking us how their debt management plan affects mortgage applications (DMP) so I have decided to give you all the info you need to help establish when you’ll be eligible for a mortgage.

In short, it’s certainly possible to get a mortgage whilst ON a debt management plan and get a mortgage AFTER a debt management plan, provided you have enough deposit and you meet the standard mortgage criteria such as income, affordability, and other credit history parameters.

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Why is it hard to get a mortgage with a DMP?

Getting a mortgage with a debt management plan proves a difficult task for most borrowers, because A) you won’t know where to start looking, and B) sadly most brokers think debt management plans and mortgages don’t mix, and they don’t even know where to start looking!!! Lenders on the high street decline applicants with DMP’s in place, and in fact most will decline applicants who have had one at any point in the last 6 years, so shopping around by your self is not the easiest thing to do!

Many brokers have restricted lending panels which means they don’t have access to every lender in the UK. Day to day this isn’t usually a problem, but when you need to do something more specialist such as mortgage with a DMP, these brokers may not have access to the right lenders and ned up turning customers away, or worse, applying with the wrong lender that would never accept the application to ‘try and get it through’ anyway – this can not only be a waste of everyone’s time but additional searches against your name can damage your credit file further.

If this is you, don’t be disheartened – the specialists we work with arrange debt management mortgages every day, so if there’s one out there for you they’ll find it!

Mortgages for people on debt management plans

“Can I get a mortgage on a debt management plan?” | It’s trickier to get a mortgage with a debt management plan that is currently active, than if you have settled it historically, however it is certainly possible and there are a number of specialist lenders who offer mortgages at surprisingly competitive rates. The main criteria for those who want to get an active DMP mortgage are:

Deposit / Equity Required

If you want a mortgage with a DMP then you can still get approved up to 95% Loan to value (LTV) under the help to buy scheme, however to be eligible for this level of borrowing you need to have had no defaults or CCJs registered for the last 3 years. If you have had other adverse credit such as defaults and CCJs inside the last 3 years then you’ll likely need a minimum of 15% deposit/equity, borrowing to a maximum 85% LTV.

Other credit history

Often we see customers who have had or are still in a DMP that have other credit issues. The two can go hand in hand because the situation leading to the individual needing a DMP in the first place usually means that things were tight financially and it is common for people to struggle through for a while first before seeking the help of a DMP to make things more manageable. As such, customer credit files often come with missed or late payments, defaults and CCJs, and even some arrears on mortgages in more severe cases. In isolation these credit issues would be accepted by most specialist adverse credit lenders, but throw in the DMP debt too and lenders are far less willing to consider the application.

It is impossible to give specific advice for everyone here, as each customer is different and may or may not be considered based on a number of factors, but in general, borrowers with an active DMP can have:

  • Some late payments (max 3 months late usually)
  • Some defaults (max 2 registered in the last 2 years, any number older than this)
  • Some CCJs (max 2 registered in the last 2 years, any number older than this)

If anyone has more severe issues such as IVA / bankruptcy / repossession from the last 6 years and is also currently in a DMP then the likelihood of being accepted is low. IVAs, bankruptcies, and repossessions are accepted by some specialist lenders if the only issue you have, but adding in a DMP after these really limits lending options.

Income and affordability.

The income and affordability rules for the specialist DMP mortgage providers can differ to that of the mainstream and high street lenders, mainly limiting borrowers to 4x annual income, however it is sometimes possible to obtain up to 5x income in certain circumstances, particularly if you have a good sized deposit and no other adverse credit issues as explained above.

Affordability will be impacted by the monthly cost of your DMP if you don’t plan to repay it either before or at the time the mortgage completes. Some lenders will take into account the monthly cost of the original credit agreements and others more simply take the monthly DMP repayment figure. For instance, if you had 6 credit agreements that cost £1500 originally, and are now £500 in the DMP, lender A may assume you are committed to a £1500pm payment and lender B £500. The impact of this is such that lender A may offer a much smaller mortgage than lender B.

The type of your income can play a part in this too, as many lenders have very restrictive lending rules when it comes to what income they accept. Thankfully a lot of the specialist DMP mortgage lenders have flexible and unique income policies, and can accept customers who have only been self-employed a year or directors of a company that need to use retained profits rather than dividends drawn for example.

Mortgages for people with settled debt management plans

“Can I get a mortgage after a debt management plan?” | Although often slightly easier to obtain a mortgage after you have settled a DMP it’s still a tricky setup and only really made easier if you paid it off over 3 years ago, as this brings more lenders into the picture that are willing to consider your application (even one or two high street lenders if your application is packaged and presented in the right way).

The criteria is loosely the same for those who have only paid their DMP off within the last 3 years, however affordability in enhanced when compared to those who plan to keep their DMP after the mortgage has started, and borrowing can be up to 5x income provided there are no other large monthly commitments.

For those who want a mortgage after a debt management plan they paid off over 3 years ago, there are more lenders willing to consider the application and as such rates tend to be more competitive by default.

If you’ve had other adverse credit issues since the DMP was settled, such as defaults and CCJs, then these will have the biggest impact on which lenders are likely to consider your application. For more info on defaults and CCJs read here but generally when added to a historical DMP you will be restricted to a handful of specialists that stipulate a maximum of 2 defaults / CCJs in the last 2 years up to 85% LTV. There are a couple of other lenders to consider you application when you’ve had more severe credit issues in the last 2 years, but you’ll need more deposit (up to 30-35%). Also bear in mind the rates and setup fees are likely to be far less competitive the more recent and severe the adverse credit issues are.

If you’re ready to make an enquiry please fill out our quick form below and an expert will be in touch ASAP. If you require immediate assistance please give us a call on 0800 304 7880 or make an application.

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