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Debt Management Plans (DMPs) are informal agreements that allow you to pay off unsecured borrowing by making a single affordable payment on a monthly basis. They don’t reduce the size of your debt; the remaining debt must still be paid off in it’s entirety and is not written off.

While a DMP isn’t registered on your credit file in the same way that bankruptcies are, it can impact your credit rating because you’re likely to be making lower payments to your creditors than originally agreed. Creditors may record these are partial payments on your credit file and could add a note to say your account is subject to a DMP.

When you apply for a mortgage, lenders will run a credit check against your name and that of any other applicant. They will see these late or partial payments and any notices relating to your DMP and these are likely to influence their decision as to whether to approve any mortgage application.

To reduce your risk of being turned down for a mortgage, you should consider using a DMP mortgage broker who can help to identify suitable mortgages to meet your circumstances, including those issued by specialist DMP mortgage lenders.

What is a DMP mortgage lender?

DMP mortgage lenders are financial institutions that specialise in lending money to people with poor credit histories, including DMPs. They offer more flexibility when it comes to affordability assessments but may charge higher interest rates to cover the risk they are taking by lending to someone with a history of late or non-payment of credit agreements. They may also limit the amount that they are willing to lend on a mortgage to 80%, meaning that you may need a larger deposit for DMP mortgages to be approved. 

In working with a DMP mortgage lender, try to be prepared before you speak to them and be honest about your financial situation. Know your credit score (there are three main credit rating agencies, and all will provide you with your score for free) and have a list of all your income and expenditure. Tell the lender about any late payments and whether your DMP is current or has ended because the older any late payments are and the longer a DMP has been paid off, the less of an impact it will have on your ability to obtain credit. 

Lenders are interested in how much you earn, any other sources of income you have and how much you spend each month. They will review this, together with your credit score, as part of the affordability assessment. This will enable them to determine whether you can reasonably make your repayments. To improve your chances here, look for houses at the lower end of your budget as your monthly repayments will be lower and you will be seen as less of a risk. Remember too that the lower the value of the house, the larger a deposit you will be able to make. 

Using a DMP mortgage broker

Because applying for a mortgage when you have a poor credit history can be intimidating, using the services of a DMP mortgage broker could be a good option. DMP mortgage brokers are specialist in helping people who have DMPs recorded on their credit files get approved for a mortgage. They will work with you to complete an affordability assessment, looking at how much money you earn and spend each month. They will find out about your personal circumstances and what you are doing to stop getting into debt again, walk you through the application process and search for the right mortgage deals for you. 

Look for mortgage brokers with industry experience and knowledge and direct access to mortgage lenders, meaning that they can negotiate on your behalf to find you the best possible deal. They will know which lenders to speak to first and which ones will look at your application without leaving a hard footprint on your credit report; too many credit applications can have a negative impact on your credit score, especially if you are turned down. 

Mortgage brokers can be independent, meaning that they have relationships with multiple lenders, work with a small group of lenders, or work with just one lender. Try to find a broker that works with as many lenders as possible because this widens the potential pool of lenders willing to offer you a DMP mortgage.

The benefits of using a mortgage broker

When you work with a mortgage broker, you benefit from their skills and experience of working in an industry that is tightly controlled by legislation. Mortgage brokers must be qualified in order to operate, meaning that they have received training in the mortgage market, mortgage law and legislation. They must also be regulated by the Financial Conduct Authority. 

Because their primary aim is to find you the best mortgage deal possible, mortgage brokers need to build positive relationships with lenders. They use these relationships to negotiate on your behalf, meaning that they can often agree better rates or lower deposits than you could on your own. 

Finally, a good relationship between a lender and a mortgage broker could mean that the lender is more willing to consider your application because they trust the broker to be honest with them in a way they might not trust you because you are an unknown to them. This could make the difference between you getting approved or not and may even lead to a reduced deposit for DMP mortgage requirements.