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Are There Mortgage Options After a Debt Management Plan?

If you've managed to repay a Debt Management Plan, are you now in a position to apply (and qualify for) a good mortgage rate? The guide to mortgages after a DMP from Revolution Finance Brokers.

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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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What is a Debt Management Plan (DMP)?

A Debt Management Plan (DMP) is a strategy to pay off unsecured debts with the help of a financial organization. You make one monthly payment to the agency, and they distribute it among your creditors.

This approach simplifies handling multiple bills by combining them into a single, more manageable payment. It often includes negotiated lower interest rates or waived fees on your debts, making it easier to reduce balances over time.

Agencies that offer DMPs work directly with creditors on your behalf to create a plan that fits your budget while addressing your debt obligations. This process can also provide temporary relief from harassing phone calls and letters from collectors as you actively take steps toward clearing your debt.

It's crucial for anyone considering this option to understand how entering into such an agreement might impact their future financial opportunities, including potential effects on mortgage eligibility.

Does a Debt Management Plan Affect Your Mortgage Eligibility?

A Debt Management Plan (DMP) can restrict mortgage options and potentially impact credit scores. It may also necessitate a larger deposit and could affect your partner's mortgage eligibility.

Restricted mortgage options

Enrolling in a Debt Management Plan (DMP) could limit your choices for securing a mortgage. Many lenders see DMPs as a sign of financial instability, making them hesitant to offer standard mortgage products to applicants currently participating in such plans.

As a result, you might find yourself with fewer lenders willing to consider your application, pushing you towards specialized loan products often accompanied by higher interest rates.

This restricted access doesn't just affect the variety of mortgage options available but can also impact the terms and conditions attached to these loans. Lenders who are open to working with individuals on DMPs may require stricter qualifications or present less favorable terms compared to what's offered to borrowers with clean financial histories.

This scenario underscores the importance of understanding how debt management options interact with mortgage eligibility before making any decisions.

Potential impact on credit score

Joining a Debt Management Plan (DMP) may alter your credit score, which lenders scrutinize closely. Credit bureaus get notified when you start a DMP since it indicates that you’re handling your debts differently than initially agreed.

This can lead to a drop in your credit score and lead to having poor credit history because it signals financial stress or difficulty in managing original debt obligations when you owe money.

This change impacts how potential mortgage lenders view your application. A lower credit score might limit the loan options available to you or result in higher interest rates. Lenders use credit scores to assess risk; thus, a significant decrease could make securing favorable mortgage terms more challenging.

Need for a larger deposit

When applying for a mortgage while on a Debt Management Plan (DMP), you may be required to provide a larger deposit. Lenders may ask for a higher deposit as it reduces their risk when approving your mortgage application.

This means that if you're on a DMP, you may need to save up more money for the initial down payment to secure a mortgage.

Potential impact on partner's mortgage eligibility

If one partner is on a debt management plan (DMP), their mortgage eligibility may be affected. A DMP provider will often consider the financial stability of both partners when assessing mortgage applications, so the DMP could impact the non-involved partner's creditworthiness and overall eligibility for a mortgage.

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Tips for Getting a Mortgage while on a DMP

Keep up with the monthly payments on time and consistently. Make sure to know your credit issues and seek independent support for guidance during the process. Keep on reading for another debt solution option.

Keep up with payments

Maintaining consistent payments is crucial to demonstrate your financial responsibility while on a Debt Management Plan (DMP). Timely payments can help rebuild your credit score and showcase your commitment to managing debt.

By keeping up with payments, you show potential lenders that you are actively addressing your debts and working towards financial stability, which can positively impact your chances of mortgage approval.

Consistently making DMP payments also demonstrates to mortgage lenders that you are capable of managing your finances responsibly despite being on a structured repayment plan. This proactive approach may increase their confidence in approving your mortgage application, especially when combined with other positive credit behaviors.

Know your credit issues

Understanding your credit issues is crucial when applying for a mortgage while on a Debt Management Plan (DMP). It’s essential to check your credit report regularly to spot any errors or inaccuracies.

By knowing where you stand, you can take proactive steps to improve your credit score, such as paying bills on time and reducing outstanding debt. Being aware of the factors that influence your creditworthiness will help you make informed decisions and work towards securing a favorable mortgage deal despite being on a DMP.

If possible, seek guidance from financial advisors who specialize in helping individuals with less-than-perfect credit obtain mortgages. They can offer tailored advice based on your unique financial situation and provide strategies to address specific credit issues that may arise during the mortgage application process.

Seek independent support

To navigate the complexities of managing a debt management plan (DMP) while seeking a mortgage, it is advisable to seek independent support. Independent financial advisors or counselors can provide tailored guidance toward understanding your credit issues and help you explore mortgage options that align with your specific situation.

It's not merely about seeking more than just advice but also having robust support to make informed decisions about your mortgage eligibility while on a DMP.

Are There Mortgage Options After a Debt Management Plan?

Debt management plans (DMPs) are usually used to pay back personal borrowing through loans, credit cards or payday loans. While having a DMP on your credit file can make it harder to get a mortgage, there are specialist lenders who can help.

In this guide, the Revolution team runs through how mortgages alongside or after debt management plans work and what factors will impact the assessment process.

Is it Possible to Get a Mortgage If I am In a Debt Management Plan?

It is possible, yes. Even if you are in a current DMP, if you can demonstrate that you can afford to keep up with the repayments and additional mortgage repayments, you can find lenders who will approve your application.

The primary criteria are to show that you have since been keeping up to date with your debts. Most lenders will need to see at least six months or a year of steady repayments.

Lenders will also consider:

  • How long your DMP has been active - if it has just been established, it will be harder to find a suitable lender.
  • The amount you owe.
  • The period the DMP is expected to run for.
  • Why you ended up with a debt management plan.

Every mortgage provider will have different policies, so whereas some will reject any applicant with a DMP, others will be more flexible.

Should your DMP relate to payday loans, you might find it harder to secure a mortgage as this type of lending is considered extremely high risk.

What are the Eligibility Criteria for a Mortgage After a DMP?

In general, lenders will need to see that you meet their criteria as closely as possible if you have any credit issues on your account.

  • Deposit - usually needs to be at least 15%.
  • Credit history - lenders may be reluctant to lend if you have any additional debts or credit issues in addition to your DMP.
  • Income - you will usually be able to borrow up to 4.5 times your annual income as a mortgage maximum. Some lenders will offer a higher multiple, although this is less likely in a bad credit scenario.
  • Affordability - lenders will deduct your debt repayments from your income to arrive at a net expendable income figure and use this to cap the value they will lend.

Can I Get any Help Buying a Property Following a Debt Management Plan?

There are a few different schemes you might be eligible for, although you'll usually need to submit a minimum deposit to qualify. None of these schemes excludes applicants who have an existing or discharged DMP.

  • Help to Buy provides a 20% equity loan against your property's value, provided you have a 5% deposit. That means contributing a 25% deposit and that a lender will be more likely to accept your mortgage application.
  • Shared Ownership allows you to purchase a stake in your property from 25% up to 75%. You pay the housing authority rent for the balance they retain and can buy more shares over time.
Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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