Debt management plan can i get a mortgage

One thing to bear in mind is that unlike with an Individual Voluntary Arrangement IVA , the interest on the debt is not automatically frozen. Because of this, and because you will be paying back less under the DMP than you would be without one, it can take a long time to clear debts.

Because DMPs are not legally binding, you can cancel an arrangement at any time. There is also no legal obligation for you to avoid taking out more credit. If you are currently on a debt management plan, it may be more difficult for you to successfully apply for a mortgage than if you have completed your DMP.

However, lenders who specialise in lending to those with past credit problems are often more willing to look at your overall financial circumstances and assess your application on an individual basis, rather than automatically declining the mortgage outright. When assessing a DMP mortgage application, in addition to the usual criteria — such as evaluating your income and expenditure including your monthly DMP payment to calculate affordability — the lender will also take account of the severity of any other credit problems, and how long ago they occurred.

If, for example, alongside a current DMP, you have had more serious problems with credit in the past — such as bankruptcy or an Individual Voluntary Arrangement IVA , or you have had a property repossessed — you may find it more difficult to be accepted for a mortgage. Less serious issues, such as late payments, or limited arrears that have since been cleared, may not present so much of a problem to the right lenders.

As a general rule, the older the entry on your credit file, the less negative weight it will carry when a lender is making a decision. High street lenders make decisions as to whether to lend based on a credit score. The information used to determine your credit score is gathered by the credit reference agencies.

The three main ones being, Callcredit, Equifax and Experian. In order to qualify for the better mortgage deals on offer, you need an exemplary credit score and, often, a sizable deposit. If you are dealing with bad credit , the chances are you will have neither of those things. Every month you make a payment under your DMP, it can show up as an underpayment on your credit report. This is because although you have come to an agreement with your creditors under the DMP, they may still record the reduced payments you make as defaults, as you are unable to pay the amount you initially agreed to pay — you broke the terms of the initial credit agreement you had with them.

Also, if you had a substantial sum of money to use as a deposit, the chances are you would have used that to pay off or pay down your debt.

All that combines to mean the number of lenders and mortgage deals available to you are limited by your DMP— but it is not necessarily impossible to get a mortgage.

The main issue is arguably that when you are on a DMP, you use all your disposable income to pay down your debts, meaning there is nothing left to allow you to save up for a deposit. It may be that you have an asset or assets that you can sell or cash in, but again, you may find yourself under pressure to put the money raised towards your debts. Also, if you are cashing in a financial product with linked life assurance, there are additional risks attached. Always take advice from a financial adviser if you are considering such a course of action.

Adverse credit may also affect the affordability assessment that the lender uses to calculate how much you can borrow, so your total mortgage borrowing may be limited by a DMP compared to the market as a whole. Lenders are aware that people will not just have one debt: their mortgage. Many people have loans, cards and other credit agreements as a matter of daily life.

However, the amount of debt, and the nature of it, will have an impact. If you are carrying a sizeable amount of debt, and especially if that debt is covered by a DMP, then a lender will question carefully just what you can afford to pay.

On the plus side, having put a DMP in place shows that you are back in charge of your finances and taking positive steps to clear your debt. Another consideration is that if you are currently renting and your rent is high, or if you are trying to downsize, you may actually end up paying less with a mortgage, effectively making your combined monthly commitments more affordable. A remortgage means that you stay in the same property, but take out a new mortgage on it.

People do this for various reasons — maybe to carry out home improvements or renovations, or to free up cash for some other reason. Remortgaging might be an attractive proposition if you are on a DMP, not least because you might be able to release enough equity to clear — or at least substantially reduce — your outstanding debts.

There are a number of factors to consider when looking to remortgage with a DMP. The first is that even though you already have a mortgage and may be looking to remortgage with the same lender, they will assess your loan application again against whatever criteria they work to.

This may mean that even though you already have a mortgage with them, they will not offer you an additional loan. You will also need to be in a position where you own a good percentage of your home. The amount of your home you own is the market value less the outstanding debt, so the amount by which the value has changed since you bought it is in your favour. Many of the points mentioned above will also apply if you have completed a debt management plan — and if you have had a DMP at any time in the past six years you may find it difficult to get a mortgage with a mainstream high-street lender, as that is how long details stay on your credit file — but in general you are likely to find lenders more willing to give you a mortgage if you have seen a debt management plan through to completion than if you are currently on one.

Obviously, this will be considered alongside an assessment of affordability and any other adverse items showing on your credit records. If you are looking for a mortgage having settled a DMP, the first thing do is to get a copy of your credit report. Check first that the basics are correct — contact details and electoral roll registration.

Incidentally, if you are not on the electoral roll, register as soon as possible, and make sure it shows in your credit report. Not being on the electoral roll, or being on, but it not showing on your credit report, can adversely impact your credit score. Next, check the actual credit details. Are there any defaults showing for debts that are now settled? If so, write to the companies involved and ask if they will update the status of the debt from default to satisfied. They are not obliged to do that, but if they are prepared to, then those defaults will be noted as such on the report.

This can be harder to achieve if you have a DMP. Every time you make a repayment on your DMP, it can appear as an 'underpayment' on your credit file. Even though you have an agreement with the people you owe money to, your monthly repayments are generally less than the minimum required.

This gets recorded as defaulted payments, and so lowers your credit score further. When looking at your application, lenders will check your income, outgoings, and affordability. They'll also look to see if you've had any other credit issues such as CCJs or bankruptcies and how long ago they happened.

Smaller issues like late payments or settled arrears might not be as much of an issue - it all depends on the lender. Generally, the older the issue, the less weight it carries with lenders. Lenders know that a mortgage won't be the only debt in your life.

They expect you to have other commitments. But the amount and the types of debt will affect how much you can borrow - especially if you're managing them through a DMP. Read more in our Debt to Income Ratio Guide. However, having a plan in place shows you've taken active steps to manage your debts. And if you're currently renting, your mortgage repayments may be less than your monthly rent, which all helps when it comes to the affordability checks.

When applying for a mortgage with a DMP, the amount you'll be able to borrow will be affected by your credit history. LTV refers to the size of the loan you need in relation to the cost of the property you're buying. But the more you can put down the better, because it means you owe less back to the lender. It can also open up the better mortgage rates.

Make an enquiry. Yes, you can remortgage with a DMP. But there are a few things to consider. However, you should ensure you are in a good position when it comes to remortgaging. But the nature and size of all these debts will have an impact on their assessment of affordability of a mortgage and, especially if you have a DMP in place, they will query exactly what you may be able to pay.

The positive side of having a DMP is that it demonstrates you are willing and able to take responsibility and have taken steps to clear the debt and get your finances in order. The other factor to bear in mind is that if you are currently renting or downsizing, your monthly payments for accommodation could actually be reduced with a new arrangement, making your possible mortgage payments more affordable.

Many people remortgage their property — staying in the same place but getting a new mortgage on it — to free up cash for various reasons. It could be for home improvements, another large purchase, or perhaps an investment.

Remortgaging can seem attractive for someone with a DHP, as it can provide the opportunity to release enough equity to completely clear — or pay off a substantial amount of — any outstanding debts. The first thing to remember when remortgaging with a DMP is that your existing lender will still assess your mortgage application in line with their usual criteria.

If you do not meet the conditions or credit score that they like, then they are likely to decline your application, even though you already have a mortgage with them. To apply for a remortgage on a property, you will also need to already own a sizeable portion of it. Time is in your favour here, as you could have purchased your property when the market value was less in the past, therefore needing a smaller mortgage at the time — so your property could have increased in value while the proportion of your mortgage you have paid off will also have improved.

If you have more recently purchased a home that has not increased much in value, and still have a large portion of the mortgage to pay, then your LTV ratio may be too high for most lenders. In either case, the lender will focus on affordability, so the size of your debts will be an important factor in their decision. You might have difficulty in finding a mainstream mortgage lender who will accept your application.

This said, you are more likely to have a lender give you a mortgage with a completed DMP than with one that is still active. Bear in mind that lenders will still have to consider any other adverse credit events on your records when making their decision.

When trying to get a mortgage after you have settled a debt management plan, the first thing you need to do is get copies of your credit reports. Make sure that all the basic details are correct — addresses, dates and electoral roll registration.

This last point is important — being registered to vote adds valuable validation to your identity, and will help your credit score. If you are not already registered, we advise you do so ASAP. The next stage is to check that all the details of credit accounts and debts are correct — the amounts, dates and if they have been settled or satisfied. If anything is incorrect, for example if a debt was fully paid off but not showing as such, or a debt was recorded where it was not the case, then contact the company responsible and ask them to update the status of the debt.

They are not obliged to, but if they do it will be a great help. Make sure to copy the letter to the main debt reference agencies — TransUnion, Equifax and Experian. Finally, take steps to rebuild your credit history by taking out a credit card, using it for regular spending and paying it off on time at the end of the month, or taking out a small loan and similarly keeping up with the regular repayments.

You just need to ensure you have enough money in your account to cover them. It is still possible to get a mortgage, despite having a DMP in place. Specialist mortgage lenders exist in the market catering directly to the needs of people who have experienced financial issues, and who will make decisions based on a wider range of factors. If you are trying to obtain a mortgage while currently in a Debt Management Plan, or having been subject to one in the past, then you may be only too aware that high street providers will tend to avoid lending to potential borrowers whose credit records contain any kind of more serious adverse events.

The process of securing a mortgage with a DMP to your name can be quite complicated and involved, requiring the services of a specialist broker as well as a specialist lender. Specialist lenders adopt a far broader and more flexible view of your finances than the traditional mainstream providers, taking into account all your current circumstances rather than relying simply on past events or a numerical credit score.

Many of them will be willing to lend to someone who has been in a DMP in the past should the applicant meet their other lending criteria and show that their finances are now on a firmer footing, although you may find that the interest rates charged will be higher than average, and that you may need to provide a larger deposit as security.

They prefer to take applications for mortgages solely via trusted advisers, so the only way to access their products is through experienced professional mortgage brokers, such as ourselves here at The Mortgage Centres. As specialist mortgage brokers, we have access to the wide spectrum of lenders across the UK mortgage market and enjoy excellent relationships with both mainstream providers and the niche market lenders catering to borrowers who have experienced financial difficulties in the past, including those who have been in a DMP.

These may involve CCJs , defaults and late payments for example. Although there are specialist lenders who focus on adverse credit, having a DMP in addition to other credit issues can restrict your options.

The good news is you can speak to an expert mortgage advisor for further clarification. As a rule of thumb, if you have a DMP you may be limited to borrow four times your annual income. If you have an active DMP, lenders will assess your affordability by taking the DMP into consideration as a monthly outgoing. The important note here is that lenders will assess your DMP as an expenditure according to their own criteria. For this reason, approaching the right lender can result in borrowing the maximum amount.

This is because lenders assess expenditure based on their own unique scoring system. Lenders will also assess your income. A self-employed mortgage with a DMP will more than likely require a specialist lender. If your DMP was settled a number of years ago, then you should have more options in terms of lenders. The main advantage of having settled your DMP is for when lenders assess your affordability.

This is because there are no monthly outgoings for your DMP, which increases your borrowing power. If you find yourself in this situation, you may have to part with a higher deposit and pay large fees to secure a mortgage. Specialist advisors can match lenders suited to your specific criteria, increasing your chances of approval.

Our advisors have a wealth of knowledge of debt and can offer you impartial advice. How long after a DMP can I apply for a mortgage? Some lenders may require you to wait 12 months before applying for a mortgage after entering into a DMP. That said, there are lenders that won't have restrictions as long as you meet other criteria. What if I've made late payments on my DMP? If you've made late payments on your DMP, then you will struggle to get a mortgage.

No, you won't need to settle your DMP before applying for a mortgage. That said, you may be offered better rates and find it easier to get a mortgage if you apply after your DMP has ended.