Understanding your personal circumstances is vital in finding the right equity release plan for you.
Mortgages With DMP
Can I Get a Mortgage With a DMP? We’re Here To Help
Increasing numbers of potential home owners come to us asking about getting a mortgage with DMP. The good news is that whilst DMP mortgages can be difficult to obtain, it is possible.
If you’re hoping to get a mortgage with a debt management plan, with a settled debt management plan or a joint mortgage with DMP but have previously been turned away by high street lenders, we can help you.
Regardless of your poor credit history, here at Amber Mortgage Solutions our experienced brokers will help to match you with specialist lenders to find you an affordable mortgage after DMP.
So What Is A DMP?
A DMP – or debt management plan – is an informal repayment arrangement between you and anyone you owe money to. This type of repayment plan is for non-priority debts only, meaning debts incurred through credit and/or store cards, loans or other types of credit agreements like mobile phone contracts.
To be eligible for a DMP you must be able to afford to make payments to your non-priority debts, as well as make your ongoing rent or mortgage payments, bills and general living costs.
A DMP will usually be set up and managed by a DMP practitioner who will act as a go-between yourself and your creditors. Their job is to negotiate on your behalf. You make regular monthly payments to the practitioner who then pays your creditors the agreed monthly repayment, also taking a fee for themselves. However, not all DMP practitioners work for a fee and some may be provided for free assistance. The top three free DMP practitioner providers available are National Debtline, Payplan and StepChange.
Unlike an IVA – or Individual Voluntary Arrangement – with a DMP the interest on your debt is not automatically frozen and because repayments are smaller than they would be without the DMP, clearing your debt can take more time.
One thing to be aware of is that you can cancel the arrangement at any time. This is because DMPs are not legally binding and therefore you are under no legal obligation to enter into such a plan.
Here’s what our client’s have to say!
I Am On a Debt Management Plan – Can I Still Get a Mortgage?
There’s no doubt that applying for a mortgage with any form of bad credit can cause difficulties, and this applies for people on debt management plans too. Fortunately, there are lenders on the market who specialise in lending to those with current or previous credit problems, who will be happy to assess applications on an individual basis, as opposed to giving borrowers with bad credit an automatic no.
Lenders will look at all the usual criteria when assessing your DMP mortgage application to calculate affordability and whether or not you are suitable for the loan. This criteria can include your income – or for joint applications, income(s) – your outgoings (including your monthly DMP repayments), your credit record and how old any incidents of bad credit may be.
If as well as your DMP your credit file shows that you have had a number of serious credit problems in the past, such as an IVA or bankruptcy, then you may find securing an affordable mortgage more difficult. However, if your credit history shows less serious issues, for example, late payments or cleared limited arrears, then this should be less concerning to lenders.
Generally with all bad credit entries on your file, the older the incident of bad credit, the less important they will be to lenders.
Why Is It Harder to Get a Mortgage With DMP?
When high street lenders consider an application, they will make their decision primarily based on a person’s credit score. The information on your score is gathered by credit reference agencies, the three main ones being Experian, Equifax and Callcredit. These agencies collect and provide the information and lenders’ use this information to make a decision on whether or not they consider you a risk to lend to.
So if you have a history of bad credit, then this is going to prevent you from qualifying for the best mortgage deals with the majority of high street lenders – and a DMP is going to create records of bad credit on your file.
The reason for this is that each month when you make a payment under your agreed debt management plan, creditors may record these payments as defaults, as you were unable to pay the full amount that you originally agreed to pay, showing underpayments on your credit file. In addition, even if lenders were to see that you had a large sum of money to use as a deposit for your mortgage, it is likely that you would be required to use this money to pay off your current debt.
As a result, having a DMP is going to limit the number of mortgage deals available to you. But having a DMP doesn’t necessarily mean the end of the road for your mortgage application.
Affordability With Mortgage DMP
Compared to the market as a whole, you may find that your total mortgage borrowing may be limited by your DMP. Especially if you do not plan to repay your DMP either before or at the time that your mortgage will complete.
This is because whilst lenders know that most people will have more than just their mortgage repayments to make, for example, many people have loan, credit cards and other credit agreements as part of their everyday lives, the amount and size of some debts – such as those covered by a DMP – will make lenders question more carefully whether or not you can afford to make your mortgage repayments.
This applies with many forms of bad credit. Whether you have a history of CCJs, defaults or a DMP, then the LTV (loan-to-value) ratio will most likely be restricted to a maximum of 85%. This means that you might need a deposit of at least 15% of the purchase price – or even larger, if your credit issues are considered more serious.
On the other hand, by having a DMP in place you are showing lenders that you are taking proactive steps to clear your debts and get your finances back on track.
Remortgaging With DMP
Remortgaging can look like an appealing choice for those on a DMP, mostly because it can provide an opportunity to release enough equity to clear or reduce your current debts.
If you’re looking to remortgage on DMP then you must remember that even if you’re planning to remortgage with the same lender, they will still want to look at your mortgage application and make a decision based on your current situation. Which means there is no guarantee that you’ll be offered a new loan.
Before you remortgage, you will also need to know whether you already own a high enough percentage of your home. To work this out you can take the market value of the property, less the outstanding debt and then the amount by which the value of your home has changed since you purchased it – giving you the total sum in your favour.
As for the LTV, with a remortgage this will need to be higher – up to 80–85% in some cases. For example, if you have a property valued at £200,000 and a mortgage of £170,000, the LTV is currently at 85% making a remortgage unlikely. However, if you have a property valued at £300,000 and the mortgage is £100,000, that would give you a current LTV of 33% – making it possible for you to release some equity of up to 80–85%.
Mortgages For People With Settled Debt Management Plans
But what if you have a completed debt management plan?
If you have a settled debt management plan or have had a DMP any time over the past six years, then you may still find it difficult to obtain a mortgage with a high street lender and many of the above points will still apply to you. However, if you have seen a debt management plan through to completion then you may find that more lenders are willing to approve your application than if you were still currently on one.
If you are looking for a mortgage with a completed debt management plan, then the first step you should take is to obtain copies of your credit report and check that all information is correct. A small piece of advice, make sure you’re registered on the electoral roll, and if not, register as soon as possible. Not doing this will show on your credit report and can negatively impact your credit score.
Notice any incorrect details on your credit report, perhaps missed payments that you know were settled or incorrect records? Then be sure to write to the creditors involved and ask for your debt statuses to be updated to show as satisfied or for incorrect entries to be removed.
By beginning to correct and rebuild your credit report, you’re demonstrating to lenders that you’re no longer a risk. Going forward, be sure to pay your monthly credit commitments on time and take steps to improve your overall finances.
How Do I Get a Mortgage With a Debt Management Plan?
By seeking the advice of a professional bad credit mortgage broker you’ll have better access to specialist mortgage lenders DMP who can find you competitive deals to suit your personal circumstances.
Here at Amber Mortgage Solutions our experience and access to the whole market means we can help to find an affordable DMP mortgage that is right for you. For more information on how we can help, contact us today to speak with one of our friendly advisors.