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Mortgages with a Debt Management Plan
Are you looking to secure a mortgage but worried your Debt Management Plan (DMP) might put some lenders off?
All lenders want reassurance that their mortgage applicants will make regular repayments on their mortgage. However, if you’ve had credit issues in the past, or currently paying off debt with a Debt Management Plan, the number of high street lenders willing to make you a mortgage offer at a good interest rate diminishes.
Those left are specialist adverse credit lenders that are prepared to accept mortgage applications based on your individual financial circumstances, even if you have credit problems. However, they may charge a higher interest rate due to the increase in risk to the lender on these types of loans.
So, if your credit history has a few blots on the landscape, or you’re struggling to get a mortgage with an adverse credit rating, using a DMP to repay your debt, could actually go in your favour.
There’s only one way to find out.
Talk To A Good Mortgage Broker
Experienced Mortgage Brokers have direct access to this niche group of bad credit mortgage lenders. They will be happy to work on your behalf by helping you apply for a mortgage and discuss your Debt Management Plan with a suitable lender.
So before you even start looking for a property, talk to a mortgage adviser who is used to helping people apply for a mortgage with a DMP.
What Does A Debt Management Plan Do?
A Debt Management Plan (DMP) is a debt repayment arrangement between you and your creditors (the companies or people you owe money to).
Having a DMP means making monthly payments you can afford to your creditors, until all your outstanding debt is cleared.
DMPs are used for repaying unsecured debt (i.e. not linked to a property you own), such as credit cards, mobile phone contracts and store card accounts.
The plan is usually set up between you and a Debt Management Company and they act as the go-between you and your creditors.
Some Debt Management Companies, such as the debt charity Step Change, will act on your behalf for free. However, other DMP companies charge a set up cost plus a handling fee for every payment you make.
A responsible Debt Management Company will help you work out a monthly household budget based on your income. This should include all your monthly outgoings, such as rent, council tax, gas, electricity, landline, broadband and water bills, plus any other essential living costs, like travel expenses.
After totalling these expenses, the amount left over is paid to your DMP company each month and shared equally among your creditors.
Will Anyone Offer Me A Mortgage With A DMP?
One of the first things a lender will do is assess your income and expenditure, including your DMP payment and how long it has to run. The less time left on your DMP, the more favourably a lender will view your mortgage application.
A lender may be more prepared to accept your application with a DMP because it demonstrates you’ve been proactive about paying off your debt.
If you keep your property search realistic in terms of the purchase price, the mortgage repayments may be a lot less than your rent payments, which will reduce your monthly expenses.
If you already own a home and need to remortgage, you may be able to use some of the equity in your property to reduce your debt.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR
Debt Management Plans And Your Credit FIle?
A DMP isn’t listed on your credit file as such. However, if a company you owe money to agrees to the repayment amount, they can add a payment arrangement flag to the debt on your credit report.
Unfortunately, because the DMP payments you make will be lower than the original minimum debt due to each of your creditors, your credit rating will be affected.
The debt you settled using a DMP will remain on your credit file for six years. It’s important to check your credit report regularly to make sure your creditors have cleared the debt so it no longer appears on your record.
How To Improve Your Credit Score On A Debt Management Plan
- Check your credit file regularly to make sure it’s up to date and correct
- If not, contact your creditors and ask them to update their records
- Register on the Electoral Roll to make sure your name and address is correct
- Continue paying your rent, mortgage and utility bills on time
- Rebuild your credit history by paying off any new credit by monthly direct debit
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Other types of mortgages are available such as Variable, Cashback, Capped, Collared & LIBOR.