Can I get a mortgage if I have a debt management plan (DMP)? Are there lenders who will help?
If you are or have been in a Debt Management Plan (DMP), this does not necessarily rule out being able to get a mortgage. There are some lenders that offer mortgages in this situation providing you have demonstrated a determination to rehabilitate your finances and have a repayment track record that indicates you are back on track from an affordability perspective. While you are likely to encounter difficulties with a mainstream lender, there are some lenders who offer mortgages designed specifically for customers with both current and historic debt management plans.
As a whole of market mortgage broker, we specialise in providing professional mortgage advice to clients with previous credit issues, including those with current or previous Debt Management Plans. Contact us today to see if we can help you.
A DMP will hit your credit rating
A DMP is a non-legally binding agreement between an individual and their creditors to repay debts. A DMP is usually administered by a licensed third party who calculates what the individual can afford to pay and negotiates with their creditors to agree a payment plan. Once the plan has been accepted the individual makes the payments to the DMP provider, who pays this money to the creditors as agreed.
Having a Debt Management Plan will usually be detrimental to your credit score because you are likely to be paying less than the minimum repayment amount you agreed to when you took out the unsecured debt. Partial payments are likely to be recorded on your credit file and indicate you have experienced difficulty repaying what you owe, so mainstream lenders may perceive you as high-risk.
Example scenario
Adam lost his job and struggled to make ends meet. He turned to credit cards to cover his basic living expenses, but his debt soon mounted up. After seeking advice from Citizens Advice, it was suggested a three-year DMP, which he has just completed.
Adam has been back in full time employment for just under three years and is now looking to purchase a flat with his girlfriend.
Adam struggled with debt but chose to tackle it with a DMP. Because a credit file covers six years of history, Adam’s credit file has a marker showing ‘partial payments’ because of the DMP. This may be enough to deter mainstream lenders from granting him the mortgage he wants. Other specialist lenders may take a different view based on the fact he successfully maintained payments throughout the duration of the Debt Management Plan and deserves the opportunity to get a mortgage assuming he and his girlfriend meet affordability criteria.
Contact us for impartial advice
There are thousands of people like Adam who have either paid off a debt management plan or are in the process of doing so, but who are penalised because of the negative impact a DMP will have on a credit score.
As a whole of market mortgage broker, we have access to specialist lenders who won’t automatically disqualify people for having a low credit score. They consider each case on its own merits and look at how the individual has conducted themselves financially since any debt issues were encountered. Contact us today to see whether we can help you.