When you apply for a mortgage, the lender is required to assess your credit report and credit score. This can be a concern for anyone who is currently using or has previously used a Debt Management Plan to clear debts and arrears. But there is good news – thanks to a “Debt Management Plan mortgage”.
Can you get a mortgage with a Debt Management Plan (DMP)?
Yes, it’s possible to get a residential mortgage or buy-to-let mortgage while you’re using a Debt Management Plan (DMP). Despite what you might have been told, some mortgage providers are willing to lend to people who are using or recently used a DMP.
What is a Debt Management Plan (DMP)?
A Debt Management Plan is an informal debt solution to help you clear non-priority debts over time, such as personal loans and credit cards. It’s an agreement made with your creditors to make a single monthly payment into the DMP, which gets split between all creditors proportional to what you owe them.
The single monthly payment is proposed based on what you can afford to pay while maintaining essential living expenses. At the same time, it’s common to ask creditors to freeze interest on the debt and any other charges. A DMP can be negotiated directly or you can use commercial services from a debt management company.
A DMP is not a legally-binding debt solution, so you or your creditors can choose to end the agreement at any time. However, if you keep up with your DMP repayments, it’s rare for creditors to abandon the agreement.
How does a DMP affect your credit score?
Using a DMP will negatively affect your credit score because you’re paying back less than what was initially agreed in credit agreements and contracts. However, a DMP is still a debt solution and without using it your arrears and credit score could have been made much worse.
If a creditor is receiving less each month than what was agreed in the initial credit agreement, they can report this to credit reference agencies. They will report “partial payments” which lower your score, and some might report “DMP” or “arrangement to pay”.
How long does a DMP stay on your credit report?
Missed payments, partial payments, defaults and DMPs will all remain on your credit report for six years. After six years have passed, the record will automatically be deleted from your credit file.
Is it more difficult to get a mortgage with a DMP?
It’s more difficult to get a mortgage during or for some time after a DMP because your credit score will have been reduced. Your credit report is assessed during any mortgage application so the lender knows how you manage your finances and debts. If the lender sees that you have had debt problems in the past and a low credit score, they might not offer you a mortgage. Or they might offer you a mortgage with a higher rate of interest.
What are DMP mortgages?
DMP mortgages, also known as bad credit mortgages, are mortgage deals for people who have an unsatisfactory credit file. If you are using a DMP or recently finished your DMP and therefore have a poor credit history, you might want to consider a Debt Management Plan mortgage instead of applying for standard mortgages.
Pros and cons of a bad credit mortgage
There are advantages and drawbacks to using a bad credit mortgage. You need to be aware of these before applying.
The main advantages are:
- A bad credit mortgage allows you to access credit to purchase property when you may otherwise not be approved
- Bad credit mortgages are available to first-time buyers and as remortgaging deals
- You can use a bad credit mortgage to help purchase a property and then refinance your mortgage to improved deals when your credit report has improved
The main disadvantages are:
- Bad credit mortgages, including DMP mortgages, may not provide the same amount of borrowing as standard mortgages
- Bad credit mortgages may have a higher interest rate
- Bad credit mortgages might not have additional benefits and features sometimes found on standard mortgage deals
Who offers DMP mortgages?
DMP mortgages and similar mortgage deals for people with poor credit can be found from a wide variety of lenders. You can source these lenders to find the most suitable options for you by speaking with Click Mortgages - Call us Now on 0800 0854401 or Click on Enquire.
