Getting a Mortgage With a Debt Management Plan (DMP)

You might think having a debt management plan (DMP) in place would prevent you from applying for a mortgage. Fortunately, this is not the case and you can often buy a house or remortgage despite having an active DMP.

In this article we’ll explain how to apply for a mortgage with a DMP and why using a broker will ensure you get the best deal possible.

Can you get a mortgage with a debt management plan?

Yes, it’s possible. However, you’re unlikely to be accepted by a high street lender if your debt management plan (DMP) has not yet been satisfied, but there are lots of specialist lenders available in the UK who will still consider your application if that’s not the case.

If your DMP is still in place, some lenders will want to see evidence you’ve kept up with the payments for at least one year before considering you for a mortgage, but there are a few who will consider a lower timescale.

The type of mortgage you can get, and the lenders available, will depend on several factors:

• Whether your DMP is active or satisfied
• How long you’ve had it and how long it still has to run
• Whether you’re keeping up repayments
• The reasons for your debt issues
• The amount of deposit you have for a mortgage

With an active DMP or one that has been settled for less than 3 years, only having a handful of lenders available will obviously impact upon the interest deal you can qualify for. With this in mind, it’s important you approach the right one first time as a rejection can have a negative impact on your credit file.

If your DMP was satisfied more than 3 years ago, you will have access to a wider pool of lenders and should be able to get a better rate. A broker with experience arranging mortgages for this type of bad credit will be able to help you identify who these lenders are, giving you a better chance of success.

How to get a mortgage with a DMP

Your application should be presented in such a way that you explain the reasons for your debt problems and show potential lenders that you will be able to keep up with your mortgage payments.

Follow these steps to make the strongest possible application:

Eligibility criteria

The eligibility criteria are very similar to applying for any other mortgage in terms of what lenders want to see:

• Identification and address verification
• Income and expenditure
• Employment status
• Credit history
• Size of deposit

Borrowing with an unsatisfied debt management plan

Additionally, if your DMP is still in place, you may need to provide:

• Evidence of satisfactory conduct of your DMP
• Bank statements as proof of how you manage your money
• Gifted deposit letter (if applicable)
• Details of why you needed a DMP

While mainstream lenders have strict credit scoring criteria, specialist lenders are more flexible and can assess applications on a case-by-case basis. Some will only approve a mortgage if your DMP has been in place for more than 12 months while others will consider applications sooner.

Not all providers have a maximum amount they will lend to someone with a DMP but some cap it at £250,000.

There are lenders who take into consideration almost any source of income and lend despite credit issues and a DMP if you can prove the loan is affordable.

Borrowing with a satisfied debt management plan

How lenders handle applications from someone with a satisfied DMP varies, but the good news is at this point more mainstream lenders will be willing to consider giving you a mortgage. Some will approve provided they have evidence it has simply been cleared while others will only consider applications once the DMP has been satisfied for at least 3 years.

Some, but not all, providers will want an explanation for your previous credit problems and may only approve a mortgage if the DMP was for debts totalling under £5000. Most will expect you to have no adverse credit since your DMP was satisfied.

Deposit amount

Typically, lenders would prefer you to have at least a 20%-15% deposit if borrowing with a DMP. This doesn’t need to come from your own account. If you have a family member who is willing to gift you the money for a deposit or stand as guarantor, your application will be strengthened and you will only need to borrow 80%-85% of the property’s value.

Other schemes to consider include:

• Help to Buy (requires a 5% deposit)
• Shared Ownership (typically requires a 5% deposit)
• First Homes Scheme (buy your first property at up to 50% discount and with no deposit)
• Right to Buy (buy your existing council home at a significant discount)

A small deposit, or no deposit at all, doesn’t necessarily mean you can’t get a mortgage with a DMP. A broker with experience in this market will help find the best solution for you.

Remortgage with a debt management plan

If you have entered a DMP while already a homeowner, you may find it difficult to remortgage with your existing lender, or with a high street lender, when your fixed term runs out. This is because they will use the same lending criteria they would to assess any other application.

You should speak to a broker 2-3 months before your fixed term runs out. They will assess your circumstances against mortgages available from specialist lenders, and compare them with the standard variable rate you will switch to so you can make an informed decision on what to do.

If you have a good amount of equity, getting a mortgage should be fairly straightforward. Equity reduces the loan to value (LTV) which lessens the risk for mortgage providers.

Get matched with a debt management plan mortgage broker

A DMP is proof that you have taken steps to deal with debt issues and shows you in a good light. The problem you would face by applying without the support of a broker is that you won’t know which lenders are sympathetic to your circumstances.

The brokers we work with are experienced in finding mortgages for people with a DMP and have close working relationships with lenders in the industry. They know how to package your application correctly and can act as an advocate if necessary to secure a deal.

Call now on 0808 189 0463 or enquire online to arrange a free no-obligation chat.