Debt management plans and mortgages

Many people will be asking, can you get a mortgage after a debt management plan. As this is a specialist area, it is extremely important to obtain advice from an expert in this field. Not all lenders will be willing to lend in such circumstances and, should you choose to go direct to a high street broker, they may not have access to all the lenders who would be willing to lend to you. It is always best, therefore, to do your homework and make sure you are seeking out the most informative, accurate advice from somebody who has access to the wide variety of lenders who may consider providing you with a mortgage with a debt management plan history.

The good news is that it is possible to obtain a mortgage if you have a current debt management plan and also to obtain a mortgage if you have had such a plan in the past. It is, however, important that you meet the criteria which are standard for mortgages including credit history, affordability and income. In addition, you will need to have provided enough of a deposit to make it viable for the lender to proceed.

What is the reason for the difficulties people may face in getting a mortgage with debt management plan?

Many people struggle to find a mortgage with debt management plan for a number of different reasons. Firstly, it is not obvious for most people where to look for relevant lenders and, furthermore, many brokers mistakenly believe that the mixture of a debt management plan and a mortgage is not possible. High street lenders tend to dismiss anybody who applies with a current debt management plan. Many also dismiss those who apply with history of a debt management plan dating back to any time within the last six years.

It is imperative that expert assistance is sought out, as it is not easy attempting to locate deals on your own. As we mentioned above, many brokers are unable to access the lenders that may be willing to approve a mortgage with a DMP. An applicant could find himself or herself in a position where a high street broker has taken all the details only to turn them away, hence wasting time or, where the broker has decided to apply on your behalf to the wrong lender in a ‘hope for the best’ approach but, in reality, the lender would never make an offer in such circumstances. Unnecessary credit searches against the credit history in your name can negatively affect your position further.

Our mortgage brokers can help you work through this minefield! We understand the process can sometimes be daunting but you can be reassured that, once you are in the right hands, there are options available to you.

Mortgages available for people with current debt management plans

As logic would suggest, it can be slightly more difficult to obtain a mortgage if you are currently on a DMP than to obtain one where you have a historical DMP. But, it is possible to do so and several specialist lenders will offer a competitive rate for these mortgages, especially given the increasing number of lenders willing to open their minds and consider borrowers with DMP. The main factors that will be taken into account for those applying with a DMP that is active are:

Additional credit history

It is common for borrowers who have a historical DMP or a current DMP to have other credit problems. There are usually other issues such as County Court judgments, defaults, late or missed payments or mortgage arrears that have an impact on applications. Although one of these issues may be accepted by many specialist bad credit lenders, the addition of a DMP debt makes it less palatable for a significant percentage of lenders. Each borrower obviously comes with a unique position but, as a general rule, if you have a current DMP, you can also have:

• A few defaults (a maximum of two registered within the last two years and any number before this time)
• A few late payments (a maximum of three months late normally)
• A few County Court judgments (a maximum of two registered within the last two years and any number before this time)

If there are any more serious issues involved such as a bankruptcy, a repossession or an IVA within the last six years AND you have a current DMP, it is very unlikely that an application will be accepted. Although a handful of specialist lenders may be willing to consider bankruptcies IVAs and repossessions on their own, adding a DMP will severely limit the options for borrowing.

With a DMP, you are still able to get an approval for a loan to value up to 95 per cent in accordance with the Help to Buy scheme. However, for this to come into play, you would need to have a history without defaults or County Court judgments within the last three years. If you do happen to have any such defaults or judgments showing within the last three years, you would probably need in the region of a 15 per cent equity/ deposit allowing you up to an 85 per cent loan to value.

Affordability and income

The criteria for this varies depending upon whether the lender is a main lender in the high street or whether they are a specialist provider of DMP mortgages. It is possible for you to borrow up to five times income depending upon circumstances, especially if a generous deposit is provided and there are no other bad credit problems.

The affordability is also affected by the ongoing monthly payment figure for the DMP if it is not paid off when the mortgage is completed or prior to that point. Some mortgage lenders will calculate based upon the DMP payment figure per month and some will look at the payment figure of the original agreements for credit.

The category of income you receive is also important to lenders. Although standard lenders tend to have rules which are somewhat restrictive in this area, the specialised DMP lenders tend to be more flexible and are willing to accept people who, for example, have been self-employed for just a year or who are company directors who need to utilise the retained profits as opposed to dividends drawn.