Article created by Christian Duncan, Director – Mortgage and Protection Adviser
Last updated 22nd December 2023
Table of Contents
Getting a Mortgage while in a DMP (Debt Management Plan)
Entering the property market can be a daunting task, especially if your financial history is intertwined with a Debt Management Plan (DMP). Fortunately, a DMP doesn’t have to be the end of your homeownership dreams. In this comprehensive guide, we’ll explore the intricacies of getting a mortgage with a DMP.
Understanding Debt Management Plans (DMP’s)
Before delving into the strategies for mortgage success, let’s clarify what a DMP entails. It is an informal agreement with creditors to pay off unsecured debts through a single monthly payment. This mechanism streamlines debt repayment and provides breathing space, but it’s non-binding and appears on credit reports for six years. Checking your DMP status is straightforward and can be done by downloading your checkmyfile credit report.
Can I get a mortgage with a DMP?
Yes, it’s possible to acquire a mortgage while managing a DMP. However, the feasibility comes down to the individual lenders’ terms and your circumstances. A current DMP might narrow your options, as mainstream lenders typically shy away from unsatisfied DMP applicants. Nonetheless, certain lenders welcome such applications, and a specialist mortgage broker can be instrumental in securing a favourable outcome. Your monthly repayment amount will be factored into your affordability assessment.
How to Secure a Mortgage with a DMP?
Initiate the process by connecting with a mortgage broker who is familiar with handling bad credit situations, including DMPs. An expert’s opinion and knowledge can vastly improve the chances of striking a favourable deal.
Understand Your Borrowing Capacity
Understanding your borrowing limit is key, and is calculated from your income, outgoings, and terms of the DMP. While general mortgage affordability calculators provide a baseline figure, lenders that accept clients with DMP’s often aren’t as lenient. Speaking with a mortgage broker who specialises in bad credit mortgage applications will help you understand how much you can secure and at what cost.
Choose the Appropriate Lender whilst having a DMP
The strategic selection of lenders who are receptive to DMP-influenced applications can make all the difference. A mortgage broker who specialises in bad credit mortgages will have a clear understanding of which lenders will consider this.
Timelines After a Satisfied DMP
The period that must elapse after settling a DMP varies across lenders, typically falling between 12-36 months. As mentioned previously you can get a mortgage whilst you have an active DMP but if you’ve satisfied this the further away it becomes the more options and better rates of interest will be available to you.
Is a Satisfied DMP Mandatory?
While not always essential, a satisfied DMP broadens your lender horizons and improves odds for competitive rates.
A higher deposit compensates for risk—a common expectation when a DMP is in the picture is that you will need a 25% deposit. This isn’t correct and there are a handful of lenders that will accept your circumstances on as little as a 5% deposit. Subject to the correct timescales.
The Weight of Your Credit Record
An active DMP necessitates a sound credit history. Leeds Building Society, for instance, might contemplate an active DMP application if past financial conduct has otherwise been impeccable.
The Potential Borrowing Sum
Income multiples, which lenders use to determine loan size, may cap at around 4.5 times your salary, given a DMP’s presence. Certain circumstances may stretch this multiple, but increased scrutiny is likely.
Specialist Mortgage Lenders for DMP Applicants
Not all lenders turn away from DMP candidates. Specialist institutions may evaluate your application with specific terms, wherein the DMP’s satisfaction tenure and the bathed credit history could dictate the interest rate and loan value.
Additional Credit Complications
Holding a DMP alongside other credit issues isn’t a deal-breaker but does complexify matters. Minor credit issues carry less weight than instances like bankruptcy, which is why a broker’s intervention can be crucial.
Re-mortgage Considerations with a DMP
Re-mortgaging with a DMP follows a rhythm similar to initial mortgages, possibly entailing more flexibility if your circumstances have progressed positively.
Ensuring your account conduct is satisfactory, you are up to date with all payments and you are repaying your DMP on time will be key to securing a better mortgage rate at the point of re-mortgage.
Buy-to-Let Mortgage Prospects with a DMP
Buy-to-let applicants with DMPs encounter similar restrictions yet can offset the DMP’s influence by demonstrating solid rental income potential and landlord experience. The majority of buy to let mortgages are underwritten based on rental income not earned income. With this in mind, having a debt management plan payment leave your account each month wont affect your buy to let mortgage affordability.
Partner with a Bad Credit Mortgage Broker
Regardless of DMP hurdles, teaming up with a mortgage broker who grasps the bad credit terrain can open the door to housing market entry. If you would like to book an appointment with us you can do this by completing the contact form above.
DMPs and Credit Files: A DMP could reflect indirectly on your credit file, impacting your credit score and mandating disclosure to prospective lenders.
First-Time Buyers: Overcoming the DMP challenge as a first-time buyer is tough but achievable, especially with a broker’s guidance.
Shared Ownership Mortgages: This path can be as attainable as conventional mortgages, with specialist broker advice being paramount.
Securing a mortgage when entangled in a DMP is undeniably complex, yet with proper guidance, accurate information, and strategic actions, it isn’t impossible. Whether you’re re-mortgaging or stepping onto the property ladder, utilising the expertise of a mortgage broker can make a tangible difference, ensuring you’re not navigating the mortgage maze alone.