Mortgages with a Debt Management Plan

Mortgages with a Debt Management Plan 

If you have had a Debt Management Plan, or are in one at the moment, you might worry that buying a home is out of the question. But with the right expert advice, you could find that it’s possible for you to get on the property ladder after all. 

What is a Debt Management Plan?

A Debt Management Plan is an informal agreement to help someone pay back their debts in a manageable way. It’s for debts like credit cards, loans and store cards, rather than priority debts like rent and mortgages. With a Debt Management Plan you make one monthly payment which is split between your creditors.

Usually you’ll appoint a dedicated provider to manage the plan and deal with the companies involved. 

How much does a Debt Management Plan cost?

It’s important to explore your options before you enter into a Debt Management Plan. Some providers charge a fee, while others are free of charge. 

Additionally, it could take longer to pay back your debt, as you’ll likely pay less each month to each creditor than you have been. You might still incur interest and charges on your debts, so the amount you owe might not reduce as quickly as you thought. 

Will a Debt Management Plan affect my credit file?

A Debt Management Plan will probably appear on your credit record as one of your creditors may want it to be recorded. The Plan will affect your credit rating, as it suggests previous credit problems that have got out of control. 

On the other hand, if you keep up with your Plan repayments and – even better – if you complete the plan successfully, this will look better on your credit file than unpaid debts.

Adverse credit records are visible against your name for six years, so even after you have completed your plan, you might find it difficult to get credit. 

It’s worth noting that a Debt Management Plan is not the most serious thing you can have on your credit record. Lenders will view bankruptcy and individual voluntary arrangements in a more negative light.

Will anyone lend to me with a Debt Management Plan?

It is certainly more difficult to find a mortgage if you have adverse credit, and many of the high street lenders will not consider you as a customer. But more specialist lenders can be sympathetic to people with poor credit so it may be possible to obtain a mortgage, depending on the specific circumstances. 

Securing a mortgage will be much easier if you can contribute a good deposit of around 20% or more. While there are some Debt Management Plan (DMP) mortgages available, you can expect to pay higher interest rates.

You will also find it easier to successfully apply for a mortgage if your Debt Management Plan is complete, ideally at least two to three years ago, and you’ve stayed within your credit limits since. 

How do I improve my credit score if I am on a Debt Management Plan?

The first step is to be aware of what the credit reference agencies have on file about you. Make sure that they have the facts right, and ask for corrections if not. 

If you’re still on the Debt Management Plan it is vital to stick to your payments and make  them on time every month. 

Once you have completed your plan, it can help to apply for small amounts of credit, ideally only using around 50% of your entitlement and paying any payments on time. This can help demonstrate that you have changed your ways and are now a responsible borrower.

Be careful not to make too many credit applications, though. Each one is noted on your file, along with any rejections. A lot of applications in a short space of time can be a red flag to a lender.

How can a Mortgage Broker like Ideal Home Loans help?

Getting a mortgage when you’ve previously run into financial problems is often difficult – and it’s even harder to know whether your mortgage application will be successful.

In this situation a mortgage broker can make all the difference. As professional mortgage experts, we will know which lenders are likely to accept your specific situation, and what a good deal looks like.

We will also work closely with you to ensure that the repayments on your mortgage will be affordable and that you don’t overstretch yourself in buying your home. For mortgage advice you can trust, contact our registered office in Westbury today.