Debt management mortgages
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Debt management mortgages
If you’ve been on a debt management plan (DMP) in the past, or you’re currently in the midst of one, getting a mortgage can feel daunting. You might assume that having a debt management plan, and having a mountain of debt to climb, rules you out of being approved for a mortgage. But, that’s not always the case.
Many people find themselves in financial difficulty and a debt management plan is an effective way to take control and move in the right direction. When it comes to getting a mortgage, debt management isn’t a setback. It’s a sign that you’re taking things seriously, making a change and getting your finances back on track. In fact, there are even debt management plan mortgages designed for people like you.
At Everest Mortgages, we’re able to help people who’ve been through debt to find lenders who understand that your financial past doesn’t define your future as a property owner.
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What is a debt management plan mortgage?
A DMP is an informal agreement between you and your creditors, allowing you to repay debts at a more manageable rate. DMPs are usually arranged through a debt management company or charity, and they help you to consolidate multiple repayments into one monthly payment, reduce the amount of interest or charges you pay and avoid more severe credit issues, like CCJs, defaults or IVAs.
With a DMP, you’ll have the opportunity to regain control of your finances and enjoy a little bit of breathing space while you get your money matters back on track. But, if you’ve had a DMP and you’re planning to buy a property, you’re unlikely to be approved for a standard fixed rate mortgage or average rate mortgage. Instead, you’ll need to turn your attention to bad credit mortgages.
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Can you get a mortgage on a debt management plan?
You can get a mortgage if you’ve been on a DMP, but you’ll probably need a bad credit mortgage, which many lenders offer.
When lenders are deciding whether to approve your application for a debt management plan mortgage, they will look at how well you’ve managed your DMP and how your finances look now. They’re interested in:
- Whether your DMP is still active or fully settled.
- Your payment history, and whether you’ve been consistent and on time.
- How much time has passed since your plan ended.
- Your credit score and overall affordability.
Even if your credit report shows late payments or defaults, many specialist lenders are more interested in your recent financial stability, putting less weight on your past struggles.
Don’t be held back by a DMP
A lot of people make the mistake of assuming that being on, or having had, a DMP means you’re automatically turned down by lenders. Though a DMP can influence the type of deals you can access and it might limit the lenders who are willing to approve you for a mortgage, it doesn’t rule you out completely.
- You might face slightly higher rates initially, but this is something you can improve by keeping up with mortgage payments and putting your DMP behind you.
- You might need a larger deposit, as lenders see you as being higher risk. This varies from lender to lender, which is why working with a mortgage broker is key.
- Some lenders have strict criteria and don’t offer bad credit mortgages, but there are many specialist lenders available. These lenders are more flexible and understanding of your struggle with debt.
Over time, as your credit record improves, you can usually remortgage to a better deal, which is something Everest Mortgages can help you with.
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Increase your chances of debt management mortgage approval
If you’re thinking about applying for a mortgage while on or after a DMP, there are a few things you can do to put yourself in a better position and increase the chances of being approved.
Check your credit report
Having debt might mean that your credit score isn’t as good as it could be, but that doesn’t mean you should forget all about it. Before you apply for a bad credit mortgage, look at your latest report and review it carefully, and correct any mistakes.
Settle or reduce your DMP if possible
If you can pay off your remaining DMP balance, or a large chunk of it at least, you show lenders that you’re back in control of your finances. Even partial settlements are a sign that you’re moving in the right direction.
Stay consistent with payments
You need to show lenders that you can keep on top of regular payments, which means being consistent with your DMP. Paying your DMP on time is one of the strongest indicators of financial stability, and suggests you’ll be able to do the same with monthly mortgage payments.
Save a realistic deposit
Though 100% mortgages do exist, it’s usually best to have a deposit if you’re applying for a debt management mortgage. The more you can put down, the more competitive your rate is likely to be and the less you have to borrow.
Work with a mortgage broker
Applying to the wrong lender can lead to being unnecessarily declined from getting a debt management plan mortgage, so work with a specialist. At Everest Mortgages, we’ll match you with lenders who are open to applicants with a DMP.
Navigating mortgages with a debt management history is tricky, but you don’t have to do it alone. At Everest Mortgages, our goal is to help you move forward confidently, with a mortgage that works for you and your finances.
Frequently asked questions
How much can I borrow with a debt management mortgage?
The amount you can borrow depends on your income, credit history and deposit size, just like any other mortgage. Most lenders will offer around 4x to 4.5x your annual income, though this can vary from one lender to the next.
What deposit do I need for a debt management mortgage?
The more you can save, the better. But, that doesn’t mean having a low deposit will rule you out. Most lenders prefer you to have a deposit of around 15% to 20% if you’re on a DMP, and slightly less if your DMP has come to an end.
Can I get a mortgage while my DMP is still active?
Yes, though your bad credit mortgage options will be more limited. Some specialist lenders will accept active DMPs, particularly if you’ve been consistent with payments.
Is it better to wait until my DMP is finished?
If you can, yes, but we know that’s not always an option. Waiting until your plan is complete can open the door to more lenders and better rates.
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