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Can I Get a Mortgage with a Debt Management Plan?

Find out everything you need to know about getting a mortgage with a debt management plan

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 28th January 2020 *

A growing number of people are asking us how their debt management plan (DMP) affects mortgage applications so I've 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 mortgage 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 yourself 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. If you have a DMP and want to get a mortgage, you'll need to find a mortgage lender who specialises in lending to customers with adverse credit on their files.

A broker without whole-of-market access or any specialist knowledge is unlikely to be able to help you get a mortgage and, worse, applying for a mortgage with a lender who would never accept an application from a borrower with a DMP, can not only be a waste of everyone’s time but additional searches against your name can also damage your credit file further.

You can save time, hassle and further damage to your credit file by working with a whole-of-market mortgage broker with experience of helping people arrange mortgages when they have bad credit.

The brokers we work with are whole-of-market and specialise in arranging mortgages for customers with all kinds of adverse credit issues.

Call 0808 189 2301 or make an enquiry for free, no obligation advice.

Can I get a loan while on a debt management plan?

If you have a DMP in place, it may be possible to get a loan. If the terms of your debt management plan allow you to apply for credit you will usually be penalised with lower borrowing limits and higher interest rates.

Some DMPs prevent you from borrowing more money until you've finished the plan. You'll need to check the terms of your DMP to find out if you're allowed to borrow more money.

If your plan does allow it, you should always ensure that you never borrow more than you can afford. Be sure you will be able to afford the repayments before you sign on the dotted line!

Can I remortgage while on a debt management plan?

Yes, you can. By remortgaging, you can borrow money against your property and use the released equity to pay off your debts. Once you do this, your credit report should mark your DMP as ‘settled’. However, it's unlikely that a mainstream lender will extend your loan with an active DMP as it's considered high risk – which is where specialist lenders come in.

Will my DMP affect my partner?

If you share a joint financial link, like a joint mortgage or a personal loan in both your names, your partner's credit rating could be affected by your DMP.

However, if your partner is a second card holder on one of your credit card accounts your DMP will have no affect.

If you share any non-priority debts with your spouse or partner, it can be included in your DMP.

It's also possible to set up a joint DMP. You can do this even if your partner earns a different salary amount to you, or if they have their own debts which they wish to include in the DMP.

If you're concerned that your spouse or partner may be being affected by your own financial situation, you can request a copy of their credit report. Any financial link affecting you both will show up.

Get your credit rating

If you want to arrange a mortgage and your partner's credit record isn't affected by your DMP, you may need to decide whether you're better off applying for a mortgage in joint names or single names. You can find this topic discussed in more detail here.

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's 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. It's 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's impossible to give specific advice, as each customer is different and may or may not be considered based on a number of factors, however, 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 it's 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 specialist DMP mortgage providers can differ to that of mainstream and high street lenders.

In the main, borrowers will be limited to 4x annual income. However, in certain circumstances, it may be possible to obtain up to 5x income, particularly if you have a good sized deposit and no other adverse credit issues.

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 will take the monthly DMP repayment figure.

For instance, if you had 6 credit agreements that cost £1,500 originally, and are now £500 in the DMP, lender A may assume you are committed to a £1,500pm payment and lender B £500. The impact of this is such that lender A may offer a much smaller mortgage than lender B.

How you earn your income can play a part in this too. 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.

We’ll find the perfect mortgage broker for you - for free

Save time and money with an expert mortgage broker who specialises in cases like yours

  • We've helped over 100,000 get the right advice
  • Our form only takes a minute, then let us do the hard work
  • Save up to £400 per year with the right advice (source: FCA)
  • All the brokers we work with have whole of market access

Mortgages for people with settled debt management plans

“Can I get a mortgage after a debt management plan?” | Although it's often slightly easier to obtain a mortgage after you have settled a DMP it’s still a tricky setup.

It's really only 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 is 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 additional large financial 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 naturally more competitive.

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 our guide.

Generally, when adding default or CCJs 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 your 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, the rates and setup fees are likely to be far less competitive the more recent and severe the adverse credit issues are.

Speak to an expert mortgage advisor

If you're concerned that your debt management plan might stop you from getting a mortgage, speak to one of the expert brokers we work with.

All the experts we work with are whole-of-market brokers with access to all the high street and specialist mortgage lenders.

Call 0808 189 2301 or make an enquiry and we'll match you with a broker experienced in arranging mortgages for customers in similar situations. They'll be happy to answer all your questions and will work with you to find the right mortgage lender for you.

The service is free, there's no obligation and we won't leave a mark on your credit rating.

Updated: 28th January 2020
OnlineMortgageAdvisor 2020 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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