Mortgage With Debt Management Plan

I have a Debt Management Plan; can Money Nest’s superheroes help me get a mortgage?

When it comes to current, active debt management plans, lenders often want evidence to show that you have been able to afford your repayments and can therefore afford a new mortgage. The lender can contact your DMP provider to check that you have made sufficient payments over a set period of time; which could be six, twelve, eighteen months, or in some cases even longer.

If the DMP is settled and no longer active, there may be more options available.

Other factors that influence the type of mortgage you can obtain include:

• How much debt there is left on the plan (you can ask the provider for a current balance)
• How long you have had the DMP for (& if it is settled or not)
• The amount of time you have left on the plan (5 years? 10 years? 7 years and 4 months?)
• The source of the debts (were they payday loans? Store cards? Overdrafts?)

Each lender is different, and the outcome will depend entirely on your individual circumstances. Some will accept your application, whilst others will dismiss it until your DMP has been settled for a set period of time.  So, the best thing to do is to speak to our mortgage superheroes and let them find a mortgage which will be the perfect fit for you.

Am I eligible for help?

You will need to tick as many of the lender’s boxes as possible to secure a mortgage if you have a DMP.

The first will be your deposit amount. You may be asked to provide a larger deposit as the more money you put down, the less risk you pose. This could be a 15% deposit as loans up to 85% are common when lending to customers with a DMP. If 15% is unrealistic you may be eligible for support through one of the homeowner’s schemes listed below.

Credit history will play a big part in securing a mortgage, so it is important to check your credit report for any other issues such as defaults, late payments, CCJs and bankruptcies.

We know a DMP would have been arranged to help you manage your finances but if this shows up on your credit file alongside any of the other issues listed above it could reduce your chances of securing a mortgage.

There is potentially some flexibility with these issues, but this will be linked to when you received your DMP and when (or if) it has been resolved. Not everyone wants to talk about their debt issues but it is important to share your credit report with a mortgage advisor so they have everything they need to find as many options for you as they can.

Your income and affordability will be assessed differently if you need a DMP mortgage as how much you can borrow will be affected by the total of your DMP. The monthly commitment figure will differ from lender to lender, as some will take your original debt amount rather than the amount you have agreed to pay every month to your DMP. This is because some lenders will view the credit agreements as full monthly committed expenditure which could impact the size of the mortgage they can offer you.

Some lenders may also restrict their lending to only certain forms of income. For example, some will need 1 year of accounts if you are self-employed, others want 3. But our superheroes know how unique income can be and we strive to use lenders who are more flexible with their income policies.

Are there any home ownership schemes that can support me?

You can still apply for government backed schemes if you have an arranged DMP. They can help you raise a larger deposit or get on the property ladder by owning an equitable share in the property instead of the full amount. The different support schemes are listed below:

Help to buy equity loan:

Help to buy is a scheme for first time buyers in the UK who are over the age of 18 and have never owned a home before. This scheme is restricted to new builds sold by a Help to Buy registered homebuilder. The government will lend you up to 20% of the value of the property and you will be required to put down 5%. This means you will need a smaller mortgage of 75%, which is much more achievable if you have a DMP. The loan is interest free for the first 5 years and our mortgage affordability calculator factors in the future potential loan repayments.

Shared ownership:

This is another government backed scheme which helps you onto the property ladder. It means you can buy a share of your home which usually sits between 25% to 75% and then pay rent on the rest. You can increase your share as time goes on, which is known as staircasing. You will need to check if this is possible with your property as some will restrict the total amount of equity you can own.

Since the Covid-19 pandemic, the government has announced more schemes to help first time buyers. These may be subject to your local area so check with our mortgage heroes to find out what you are eligible for.

Private schemes (i.e. Proportunity)

Some mortgage experts (like Money Nest’s) also have access to additional lending options and there are some very exciting opportunities for borrowers who have a smaller deposit to buy any property using a private equity loan (not just new build like with the government help to buy). It works in much the same way as help to buy, but can mean a smaller mortgage and thus, greater access to lending options.

What happens after my DMP is settled?

The longer time passes between when your DMP started or ended, the more lenders will be willing to offer you a mortgage (which can usually mean access to better deals).

The eligibility criteria will be similar to when you had your DMP, but affordability should improve. You could borrow up to 5x your income providing you do not have any further adverse credit issues. Any new defaults or CCJs, combined with a historical DMP will again restrict you to a small pool of lenders.

Mortgages can be detailed, with or without a bad credit history, so let our superhero experts do the hard work for you. Get in touch now, they are primed and ready to spring into action!