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Mortgage with a debt management plan

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Mortgage with a debt management plan

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Last reviewed on 5th April 2022

Being on a Debt Management Plan (DMP) can be a struggle, but what if you need a mortgage?

Many borrowers assume that a mortgage would simply be out of the question and they would be wrong to do so. It’s certainly possible to get a mortgage with a debt management plan, whether your DMP is active or complete.

Getting a mortgage with a completed DMP is easier in comparison to an active DMP. Nonetheless, both situations are possible, especially with the right approach. Lenders will also assess your affordability, income, LTV and your credit score.

This guide will explore what you can do to get a mortgage, despite having had a DMP. It’s understandable that you may feel as though your options are really limited. Don’t worry, we can help. Our advisors specialise in mortgages that involve debt management plans. You can make an enquiry if you require the help of an advisor.

Can I get a mortgage with a DMP?

If you’ve had a DMP, then getting a mortgage won’t be a straightforward process, but it is possible.

If your DMP has been active within the last six years, a lot of lenders will simply decline you. Brokers may also incorrectly tell you that you won’t be able to get a mortgage. This is because they could be restricted to a certain panel or are inexperienced in cases that involve debt issues.

If you need a mortgage with a DMP, you’ll most likely need a specialist lender. You’ll also benefit from an advisor with access to the whole market and without restrictions. Furthermore, advisors that have experience with cases that involve debt can be invaluable.

Don’t approach a lender by yourself, as you’ll simply be leaving it to chance. This is perhaps one of the worst things you can do. This is because being declined can cause further issues with your credit file.

Our advisors have access to the whole market and work with specialist lenders. Specialist lenders are likely to approve a mortgage involving a DMP whereas high street lenders are likely to decline. Speak to our experts to assess your situation and if possible, place your application with the best-suited lender.

What is a debt management plan?

A debt management plan is designed for those who want to repay their debt in a more managed way. For instance, a DMP allows those in debt to make repayments to their creditors at a more affordable rate.

A DMP can be ideal if you feel your debts are spiralling out of control and can help you get your financial affairs back on track.

You’ll typically need a DMP practitioner to arrange and approve your plan. Your practitioner will then act as an intermediary between you and your creditors.

How much deposit will I need if I have a DMP?

As with all mortgages, higher deposits always give access to more lenders and possibly better rates. That said, if you’ve had a DMP it’s still possible to secure a mortgage with a 5% deposit.

This would however involve applying for a Help to Buy mortgage. In most cases, you would also need a clean credit file for at least the last three years. If you’ve experienced other credit issues such as CCJs or defaults, then you may need a higher deposit of around 15-20%.

It’s highly advised to check your credit file before making a mortgage application. This will give you an idea of what lenders will see on your credit report. You can then tailor your approach accordingly.

Learn more: How to get a Right to Buy mortgage with poor credit

I have really bad credit, can I still get a mortgage?

A debt management plan usually follows some sort of financial struggle. As a result, it’s common for borrowers to have other credit issues.

It’s possible to get a mortgage with the following credit issues, in addition to your DMP:

Although there are specialist lenders who focus on adverse credit, having a DMP in addition to other credit issues can restrict your options. If your credit issues are severe, then your options become further limited.

It’s impossible to give you a tailored answer without assessing your mortgage needs and credit file. The good news is you can speak to an expert mortgage advisor for further clarification.

ask a mortgage broker

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

As a rule of thumb, if you have a DMP you may be limited to borrowing four times your annual income. It’s sometimes possible to borrow up to five times your annual income if you have a large deposit without having any severe credit issues.

If you have an active DMP, lenders will assess your affordability by taking the DMP into consideration as a monthly outgoing. The important note here is that lenders will assess your DMP as an expenditure according to their own criteria. For this reason, approaching the right lender can result in borrowing the maximum amount. This is because lenders assess expenditure based on their own unique scoring system.

Lenders will also assess your income. This is particularly important if you’re self-employed as going to high street lenders can leave you with limited options.

A self-employed mortgage with a DMP will more than likely require a specialist lender. This is because specialist lenders tend to offer more flexibility, even if you’ve only been self-employed for one year. This is why it’s advised to use a specialist that understands lenders and their specific criteria.

Use our bad credit mortgage calculator to see how much you can borrow.

Getting a mortgage with a settled DMP

Having settled your DMP as opposed to an active DMP can improve your mortgage chances. If your DMP was settled a number of years ago, then you should have more options in terms of lenders. It’s certainly easier to get a mortgage with a historic DMP than a more recent one.

The good news doesn’t stop there. The main advantage of having settled your DMP is that it can help your affordability assessment. This is because there are no monthly outgoings for your DMP, which increases your borrowing power.

If your DMP was settled over three years ago, you’ll find that suited lenders may even offer you preferential rates in addition to your approval.

I’ve had more credit problems since completing my DMP

Things can become difficult if you’ve run into new credit issues after completing your DMP. Additional credit problems can limit the lenders you’ll be able to approach.

If you find yourself in this situation, you may have to part with a higher deposit and pay large fees to secure a mortgage.

Speak to a DMP mortgage specialist

If you’ve had a DMP and require a mortgage, we’d highly recommend speaking to a specialist advisor who has access to the whole market.

Specialist advisors can match lenders suited to your specific criteria, increasing your chances of approval. Our advisors understand debt solutions and can offer you impartial advice.

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About the author

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.