Apply For a Mortgage with a Debt Management Plan (DMP)

Getting a Mortgage With a Debt Management Plan (DMP)

​​

1. Understanding What a DMP Is

2. How a DMP Can Affect Your Mortgage Application

3. Preparing Your Finances Before You Apply

4. Improving Your Chances of Mortgage Approval

5. Common Concerns and Questions About DMP Mortgages

6. How a Specialist Mortgage Broker Can Help

7. Steps to Take If You Have Been Rejected

​​

1. Understanding What a DMP Is

​

A Debt Management Plan is an agreement between you and your creditors to repay debts at a rate you can realistically afford. It is usually set up through a debt management company or a charitable organisation that negotiates with your lenders on your behalf. Under a DMP, you make a single monthly payment to the debt management provider, who then distributes it among your creditors. This can help simplify your outgoings and reduce financial stress if you’ve been struggling to keep on top of multiple credit repayments.

​

• DMPs and Your Credit File: One key aspect to keep in mind is how a DMP is recorded on your credit file. While a DMP itself might not appear explicitly as ‘Debt Management Plan’ on your record, your creditors may mark your credit file to show reduced or partial payments. This can remain visible to mortgage lenders and may impact the type of mortgage deals you’re eligible for.

• Duration of a DMP: The length of time you spend in a DMP depends on how much you owe and the monthly amount agreed for repayment. It can range from a few years to longer periods, depending on your specific circumstances.

​

Understanding what a DMP really entails helps you approach the mortgage process with clarity. It is not a life sentence, and it does not necessarily bar you from ever owning a home. Rather, it is a tool to help you manage and ultimately reduce your debt in a more manageable way.

​

2. How a DMP Can Affect Your Mortgage Application

​

While a DMP can certainly shape how lenders perceive your creditworthiness, it does not mean you cannot get a mortgage. Lenders will typically consider several factors:

​

• Reduced Credit Scores: Because you have been making reduced payments through a DMP, your credit score might be lower than it would be otherwise.

• Affordability Concerns: Some lenders might question your ability to keep up with mortgage payments if you’ve needed assistance to manage your debts in the past.

• Deposit Requirements: In some cases, you may need a larger deposit to offset the perceived risk lenders see in your credit history. Whilst it’s possible to apply for low-deposit mortgages, your DMP might mean that you need to aim for a higher deposit to access better terms.

• Proof of Financial Conduct: Some lenders will want to see a track record of on-time payments within your DMP and evidence of stable finances since you entered the plan.

​

It’s important to remember that different lenders have different criteria. You may find that one lender declines your application while another, with more flexible or specialist underwriting, is happy to consider your application more favourably. This is where a mortgage broker can be pivotal, as they can direct you towards lenders whose criteria align more closely with your specific financial background.

​

3. Preparing Your Finances Before You Apply

​

Before diving into a mortgage application, you should make sure that your finances are as organised as possible. Being on a DMP means you’re taking responsibility for your debts, but you can still do more to present yourself as a reliable mortgage borrower:

​

1. Check Your Credit Reports: Request copies of your credit reports from major credit reference agencies. Carefully review them for any errors or outdated information. If you spot mistakes, contact the agency to correct them straight away.

2. Review Your DMP Terms: Ensure you fully understand how much you owe, to whom, and how your payments are being managed. You should also confirm that all payments under your DMP are up-to-date.

3. Be Realistic About Your Budget: Calculate your expenses and potential mortgage payments in light of your DMP. Being clear about what you can afford will guide you towards a suitable mortgage product and help you avoid overcommitting.

4. Save What You Can: If possible, try to put aside savings for a deposit (if you’re purchasing) or reduce your outstanding mortgage balance if you’re remortgaging. Even a small cushion can help when lenders evaluate affordability.

5. Avoid New Credit: Taking out new lines of credit while you’re in a DMP can negatively impact your creditworthiness. It signals to lenders that you might be relying on further borrowing to manage your finances.

​

4. Improving Your Chances of Mortgage Approval

​

Since your DMP might cause some caution among lenders, it helps to proactively take steps to improve your prospects:

• Keep Up DMP Payments: Consistency is key. By maintaining a perfect payment record within your DMP, you build a case for yourself as a responsible borrower.

• Consider Overpayments: If your DMP provider allows you to overpay, doing so can help reduce your total debt faster and demonstrate that you’re serious about clearing your debts.

• Demonstrate Stability: Lenders like to see consistency. Holding the same job for a reasonable period and having a stable address history can work in your favour.

• Wait for the Right Time: If possible, consider waiting until you have made sufficient progress on your DMP. For some, waiting until the DMP is nearly completed can open up better mortgage rates or deals. However, this may not always be feasible if your housing needs are time-sensitive, in which case you would look for lenders who are more flexible about DMP arrangements.

• Speak With a Mortgage Broker Early: By having an initial discussion with a broker, you can understand how best to prepare, what documentation you’ll need, and whether your deposit size is likely to be sufficient.

​

5. Common Concerns and Questions About DMP Mortgages

​

a) Do I Have to Disclose My DMP to the Lender?
Yes. Full disclosure is essential. Concealing your DMP could lead to your application being rejected later, or worse, cause issues after the mortgage completes. Honesty allows your broker and potential lenders to accurately assess your application and avoid unpleasant surprises.

​

b) Will I Only Have Access to High-Interest Rates?
Not necessarily. Whilst it’s true that your options might be fewer than someone with a perfect credit record, there are specialist lenders who understand the challenges associated with DMPs and still offer competitive rates. A broker can help you compare products to find a deal that suits your circumstances.

​

c) Should I Pay Off My DMP Before Applying?
Paying off your DMP in full could potentially improve your mortgage prospects by strengthening your credit file. However, it’s not always an option for everyone. If you have the means to pay off your DMP, you may then want to wait a few months so your credit file can update, and your score can potentially improve before applying for a mortgage. Yet, this depends entirely on your personal financial situation and the urgency of your property purchase.

​

d) What If My Partner Is Not on a DMP?
When applying for a joint mortgage, both parties’ financial backgrounds are considered. If your partner has a strong credit history, it may offset some of the negativity associated with your DMP. However, lenders will still look at your individual situation, so it is important to be open with your partner about your finances and plan accordingly.

​

6. How a Specialist Mortgage Broker Can Help

​

A mortgage broker with expertise in adverse credit or specialist mortgage scenarios is invaluable if you’re applying for a mortgage with a DMP.

 

Here’s how they can support you:

• Understanding Your Circumstances: Brokers experienced with DMP cases know the nuances of lenders’ criteria. They can pinpoint those more inclined to consider your application despite the presence of a DMP.

• Tailoring Mortgage Solutions: By comparing a wide range of mortgage products, a broker can recommend a mortgage that fits your circumstances, balancing your need for an affordable monthly payment with the best interest rate possible in your situation.

• Negotiating With Lenders: Sometimes a broker can speak to underwriters directly and present your case in a way that highlights the positives, such as your commitment to repaying debts consistently.

• Saving You Time and Stress: Attempting multiple mortgage applications on your own can be time-consuming and might harm your credit score if multiple searches appear on your credit report. A broker streamlines the process and ensures you don’t waste time pursuing unrealistic options.

• Providing Guidance on Document Preparation: You’ll need various documents to support your mortgage application, such as proof of income, proof of deposit, and evidence of your DMP payments. A broker can help you compile these efficiently.

​

7. Steps to Take If You Have Been Rejected

​

If you have already attempted to apply for a mortgage and were rejected, it’s not the end of the line. Rejections can happen for various reasons, including incomplete documentation, insufficient deposit, or an underwriter’s caution about your DMP.

• Request Feedback: Whenever you’re turned down, try to obtain feedback on why your application was rejected. This can guide you on how to improve next time.

• Review Your DMP Progress: Ensure your payments are up-to-date and consider whether you can reduce your debt further.

• Wait and Rebuild: It can be tempting to make another application immediately. However, taking time to address the reasons behind the rejection can increase your chances on a subsequent attempt.

• Speak to a Specialist Broker: A rejection from one lender does not mean you have no options. Specialist mortgage brokers often have insights on lenders who may accept your application under slightly different terms.