Whilst it is possible to get a mortgage if you’re on a debt management plan (DMP), there are a number of criteria that you will need to meet – much like when applying for a standard mortgage.
I’m on a DMP. Why is it so hard to get a mortgage?
It’s likely that most high street lenders will decline you if you have a DMP in place, or have had one within the last six years.
If you fall into that category, then you’re going to need to find a specialist lender that deals with applicants that have bad credit or DMPs in place.
So, it’s possible?
It’s more difficult than your standard mortgage application, but it’s possible.
However, if you have had a DMT that has now been settled, you will be in better stead than if you were applying with an active agreement.
What things do I need to consider when going for a specialist mortgage?
If you’re on a DMP, it could still be possible that you can get up to 95% loan-to-value (LTV) using the government’s Help to Buy scheme, meaning you only need a 5% deposit.
However, if this is the route you wish to go down, you need to have had no defaults or CCJs on your record for the last three years before applying.
What if I do have a CCJ or default on my record?
If you’re on a DMP and have a default or CCJ, then you will more than likely need a minimum of a 15% deposit to borrow a maximum of 85% LTV.
In normal circumstances, credit issues such as missed or late payments, or the odd default, would likely still be considered by lenders.
But, with the addition of the debt management plan, applicants may struggle without the help of specialist lender.
Every case is different, as each lender requires different criteria to be met, but usually, if you have a DMP you could have your application approved if you have a couple of late payments that are no than three months late, up to two defaults in the last two years or up to two CCJs registered in the last two years.
If you have more severe problems such as an IVA or bankruptcy then, unfortunately, the chances of you being accepted is low. These sorts of things can be accepted by lenders, but with the addition of a DMP will limit the number that you can approach.
Income and affordability
If you aren’t planning on repaying your DMP before your mortgage completes, then some lenders will take your payment to the debt management plan and add it to your affordability calculations.
It should also be noted that some lenders will just look at the DMP payment whilst others will look at the cost of the original amount.
For example, if you had a group of credit agreements that cost £1500, and they are now £500 in the DMP, one lender may assume you are committed to a £1500pm payment and whilst another will look at the DMP amount of £500, meaning that the first lender may offer a smaller mortgage than lender B.
For advice on obtaining a mortgage if you’re on a debt management plan, speak to one of our expert advisers who will be able to help you with the next steps.