Can I get a mortgage with a debt management plan (DMP)?

If you are currently in a DMP, it is very likely that you’ll need a larger deposit. This also applies if you have recently completed a DMP.

As mentioned above, a lender will typically allow a maximum of 85% LTV. Therefore, you will need a minimum of a 15% deposit. However, this is just a rough idea based on your circumstances.

If you are currently in a DMP, as well as a poor credit record, you may be required to provide a lot more.

If necessary, you might be able to try other courses of action to raise funds, such as selling or cashing in assets. The problem here is that if you do this, you may then be under pressure to use that money to pay off debts rather than contribute to a bigger deposit.

Your credit history will affect the ‘loan-to-value’ (LTV) ratio of a mortgage offer – how much you can borrow compared to the market value of the property. With an active or past DMP, it is unlikely you will be able to borrow at a high LTV ratio like 95%, to make lending more widely accessible. Lending is likely to be restricted to 85% of the property’s value if you have a history of defaults or CCJs (County Court Judgements), so you will be expected to provide a 15% deposit. More serious credit issues might mean a lender will ask for an even higher deposit, to reduce their perceived risk.

A lender could be likely to ask for a larger deposit, but the issue here is when you are using any disposable income to pay off your debts under a DMP, you will not be able to save any more money for a deposit.

If necessary, you might be able to try other courses of action to raise funds, such as selling or cashing in assets. The problem here is that if you do this, you may then be under pressure to use that money to pay off debts rather than contribute to a bigger deposit for a mortgage. And also, cashing in a financial product linked to life assurance could have other implications. You should always seek sound financial advice as to the future impact of these actions from a financial adviser before doing this.

Many people remortgage their property – staying in the same place but getting a new mortgage on it – to free up cash for various reasons. It could be for home improvements, another large purchase, or perhaps an investment.

Remortgaging can seem attractive for someone with a DHP, as it can provide the opportunity to release enough equity to completely clear – or pay off a substantial amount of – any outstanding debts.

The first thing to remember when remortgaging with a DMP is that your existing lender will still assess your mortgage application in line with their usual criteria. If you do not meet the conditions or credit score that they like, then they are likely to decline your application, even though you already have a mortgage with them.

To apply for a remortgage on a property, you will also need to already own a sizeable portion of it. Time is in your favour here, as you could have purchased your property when the market value was less in the past, therefore needing a smaller mortgage at the time – so your property could have increased in value while the proportion of your mortgage you have paid off will also have improved. If the current value is £300,000, and you have paid £100,000 of a £150,000 mortgage, with your current LTV ratio being 50% it is likely you would be able to release a decent portion of the extra equity.

If you have more recently purchased a home that has not increased much in value, and still have a large portion of the mortgage to pay, then your LTV ratio may be too high for most lenders.

In either case, the lender will focus on affordability, so the size of your debts will be an important factor in their decision.

Like all other adverse credit issues, a DMP will stay on your credit record for six years, whether settled or not, and during this time may affect your credit score and therefore a lender’s decision. You might have difficulty in finding a mainstream mortgage lender who will accept your application. This said, you are more likely to have a lender give you a mortgage with a completed DMP than with one that is still active. Bear in mind that lenders will still have to consider any other adverse credit events on your records when making their decision.

When trying to get a mortgage after you have settled a debt management plan, the first thing you need to do is get copies of your credit reports. Make sure that all the basic details are correct – addresses, dates and electoral roll registration. This last point is important – being registered to vote adds valuable validation to your identity, and will help your credit score. If you are not already registered, we advise you do so ASAP.

The next stage is to check that all the details of credit accounts and debts are correct – the amounts, dates and if they have been settled or satisfied. If anything is incorrect, for example if a debt was fully paid off but not showing as such, or a debt was recorded where it was not the case, then contact the company responsible and ask them to update the status of the debt. They are not obliged to, but if they do it will be a great help. Make sure to copy the letter to the main debt reference agencies – TransUnion, Equifax and Experian.

Finally, take steps to rebuild your credit history by taking out a credit card, using it for regular spending and paying it off on time at the end of the month, or taking out a small loan and similarly keeping up with the regular repayments. It’s a good idea to set up direct debits for all loan repayments, so they always go on time. You just need to ensure you have enough money in your account to cover them.

It is still possible to get a mortgage, despite having a DMP in place. Specialist mortgage lenders exist in the market catering directly to the needs of people who have experienced financial issues, and who will make decisions based on a wider range of factors.

The best thing to do is to discuss your situation and what you’d like to achieve with a qualified mortgage broker who has direct experience with the ‘bad credit mortgage’ market. Here at The Mortgage Centres, we’ll be able to help you find a provider who understands DMPs and allow you access to deals you will not find on the high street.