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Mortgage with a debt management plan

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HomeBad Credit MortgagesMortgage with a debt management plan

Mortgage with a debt management plan

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Last reviewed on 24th November 2023 by Martin Alexander (Mortgage Advisor)

Applying for a mortgage with a debt management plan (DMP) can be challenging. A key factor that lenders will assess is when your DMP started and whether your DMP is active.

As lenders have unique criteria, some won’t accept a mortgage with a debt management plan, whereas others will. High-street lenders typically refuse applicants with a DMP, but a specialist lender may consider you.

Our advisors specialise in mortgages involving debt and credit problems. Based on your circumstances, we’ll find eligible lenders to apply with.

What is a debt management plan (DMP)?

A DMP is an agreement between you and your creditors to repay the debt you owe. You’ll agree to make one set monthly payment to pay your creditors.

A DMP practitioner will arrange and oversee your payments to ensure your creditors are paid. However, a debt management plan isn’t a legal agreement, so you can cancel it whenever you want.

A DMP can be ideal if you feel your debt is out of control and can help you get your finances back on track. You must be able to repay your DMP and other living costs, such as a mortgage or rent.

Can I get a mortgage with a debt management plan?

You can get a mortgage with a DMP, whether you’re in an active DMP or had one in the past. Waiting until your DMP has finished can unlock more lenders and better interest rates.

A DMP older than six years won’t affect your mortgage. If your DMP ended over three years ago, you’ll have a choice of lenders to apply with. A recent DMP will leave fewer lenders, especially if it finished in the last 12 months or if you started one less than a year ago.

You’ll likely need a specialist lender if you’re still on your debt management plan. Speak to an advisor to check your mortgage options.

Should I complete my DMP before applying for a mortgage?

Settling your DMP before applying for a mortgage can be beneficial. You’ll have more lenders to approach and better interest rates.

Applying for a mortgage at least one year after your DMP can be worth the wait. You’ll pay higher interest rates on a mortgage with an active DMP, and finding a lender can be difficult.

You’ll also be able to borrow more once your DMP ends. With a DMP, you will have an additional monthly outgoing, which lenders will consider when assessing your affordability.

Why is it harder to get a mortgage with a DMP?

A DMP makes it harder to get a mortgage because:

  • Fewer lenders accept DMPs. As a result, finding a suitable lender can be much harder. Once you’ve found a lender, there’s no guarantee you’ll meet the rest of their criteria.
  • A DMP can affect your affordability. Borrowing the amount you want can be difficult with a DMP, as you’ll need a large enough income to pay this and a mortgage.
  • You’ll likely need a higher deposit. Most lenders that accept debt management plans will require a 15% deposit at least. Saving for a higher deposit while paying a DMP can be challenging.

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How much can I borrow if I’ve had a DMP?

You can typically borrow between three and five times your income. However, lenders will also check your outgoings to ensure you have enough income to pay a mortgage. This is where a DMP can cause issues, as it will be considered a monthly outing.

If your DMP was in the past, you should be able to borrow up to five times your annual income.

Will I need a larger deposit if I have a DMP?

As with all mortgages, higher deposits always give access to more lenders and possibly better rates. Your deposit amount will depend on when your DMP was and whether it’s active.

You’ll require a 15% deposit with an active DMP, but you may require less if your DMP was over a year ago. If your DMP was over six years ago, you can get a mortgage with a 5% deposit.

Specialist debt management plan mortgage advice

If you’ve had a DMP, speak to an advisor who can check whether a mortgage is possible. We’ll also find lenders you’re eligible for and those willing to lend more than others.

Having a DMP will make your application more complex, so applying without an advisor isn’t recommended.

Mortgages with a DMP FAQs

Some lenders may require you to wait 12 months before applying for a mortgage after entering into a DMP. This is so lenders can assess whether you’re making your monthly payments without any issues.

If you’ve started your DMP, you’ll need time to adjust to the new monthly cost. That’s why lenders prefer applicants to be further into a DMP to be suitable for a mortgage.

If you’ve made late payments on your DMP, you will struggle to get a mortgage. You’ll also need a larger deposit of at least 25% for a lender to consider you.

You can remortgage with a DMP. It’s easier to remortgage, as your lender can assess how you’ve repaid your mortgage alongside your DMP. You’re also likely to have equity in your home, which strengthens your application.

However, remortgaging can be difficult if you’ve paid your mortgage or DMP late.

Your DMP won’t be on your credit file, but your outstanding debt will. This will usually stay on your credit file for six years. You’ll also need to disclose your DMP at the start of your mortgage.

A debt management plan varies in length and will depend on circumstances, such as your debt amount and what you’ve agreed to pay each month.

You can pay your DMP earlier than planned. If you can afford to make larger payments each month, it can be something to consider, especially if you want a mortgage. Although paying more towards your DMP will leave you with a smaller mortgage deposit, you’ll get a mortgage much easier.


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About the author

Martin Alexander
Senior Mortgage Advisor | More Articles

Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.