If you are in a debt management plan or have recently finished your debt management plan it will definitely affect your ability to get a mortgage. You may be reading this as you have heard you can’t get a mortgage when you have had a debt management plan. This is not always the case and it is possible to obtain new finance to buy a home or even mortgage your existing property to get a better deal or carry out home improvements.
While the majority of high street lenders are likely to decline your application if you have any adverse credit there are specialist lenders that provide mortgages specifically for customers who have had debt problems. With the increased amount of people with bad debt there is more demand for specialist lenders which has led to more lenders in the market place. The more competition there is the more competitive rates we are seeing these lenders offer.
What is a Debt Management Plan?
A debt management plan (DMP) is an informal agreement between you and anyone that you owe money too. A debt management plan is for non-priority debts. Non-priority debts are credit such as store cards, credit cards, loans and other credit agreements such as a phone contract.
DMP’s can be arranged directly between you and anyone you owe money to, or they can be arranged and managed by a DMP practitioner. The practitioner will act as a middle man between you and the creditors. The practitioner will then be able to negotiate with them for you and will make the monthly payments directly to them. Some DMP practitioners will charge a fee and some are free so if you are thinking of a DMP ensure you choose a free one so all of your monthly payments will go towards paying of your debt.
Unlike other arrangements that you can make to take control of your debt interest will not be frozen. This means that it will take you longer to pay everything off and you will end up paying more interest on your debt. While in a debt management plan you are not obligated to not get further credit.
Can I get a mortgage while on a debt management plan?
If you are in a debt management plan, it can be more difficult to secure a mortgage. Applying directly through any of the high street lenders is highly unlikely to get accepted. In your situation it is best to seek the help of a specialist mortgage advisor that will be able to place your application with specialist lenders who are more willing to lend to customers with adverse credit and DMP in place. Specialist lenders will look at your whole financial circumstance and assess you on an individual basis not just an automated system that will automatically decline you.
Mortgage on debt management plan
When lenders access a DMP mortgage application they will go through the usual criteria. This will be assessing income and expenditure (including DMP payments) to calculate affordability. The severity of credit problems and how long ago they occurred will also be taken into account.
If you have any other adverse credit events alongside your DMP such as IVA’s or Bankruptcy then it may be even more difficult for you to be accepted for a mortgage. IF you have had less serious issues such as late payments or missed payment’s that have since been cleared then they will pose less of a problem to a lender. The older the adverse credit events happened the better in this situation and they will carry less negative weight when it comes to a lender making a decision.
It is best to speak with a professional mortgage advisor that has experience dealing with these situations. Call us today or fill in one of our enquiry forms to speak with a bad credit mortgage broker.
Mortgage with a settled debt management plan
Although getting a mortgage with a settled debt management plan is slightly easier to obtain than if you are still currently in your DMP, it is still tricky. It is best to seek specialist help in these circumstances too. One your DMP has been settled for over 3 years it will mean there are more lenders willing to consider your application. The criteria is very similar as if you were still on a DMP however affordability is different as you no longer have debt payments, this increases the borrowing limit up to 5x income providing there are no other large monthly commitments.
If you are in the position where you are looking for a mortgage after a debt management plan you paid off over 3 years ago, there are more lenders that will consider your application which means rates tend to more competitive.
If you have had credit problems since your DMP then again whether or not you can get a lender to accept your application while depend on the severity of credit issues that you have had, missed and late payments in the last 2 years are much less serious than an IVA but you may still need a larger deposit to secure a mortgage.
Remortgaging with a Debt management plan
Remortgaging is where you stay in the same property but take out a new mortgage product on that property. There are several reasons why people do this, home improvements, free up cash for a large purchase or just to get a better rate to keep the interest low.
Remortgaging with a debt management plan may be good as it can help to free up cash that can be used to pay off debt or at least substantially reduce it. When considering a remortgage with a DMP there are a number of factors to consider. Even though you already have a mortgage and are looking at another financial product even if you are planning on using the same lender you will still need to be assessed for the new loan. If your lender is strict then you may not be able to remortgage through that lender. This is when specialist lenders will come in that may be able to help you to remortgage.
To get a remortgage on a DMP you will need to be in a good position in terms of LTV. This means that if you have a mortgage for say £100,000 and your home is valued at £300,000 you have a LTV of 33% which is good as it means less risk for the lender. If this is the case you may be able to release equity up to 80% – 85%.
Bad credit remortgages are complex and need to be package right for the lender to accept. It is advisable to speak with a specialist mortgage broker who will be able to help you with your application and has the knowledge of specialist lenders.
We Can Help
Any kind of bad credit makes your situation more complex and getting an expert involved can sometimes be the difference between getting your application approved and getting it declined. For free advice give us a call on 0191 442 38 44 or fill in one of our enquiry forms. You can also use our bad credit mortgage calculator to find out how much you could borrow