A DMP is similar in nature to a consolidation loan. A formal debt management plan is a bespoke arrangement that enables the debtor to repay their debts in a way that suits their budget.
Most mainstream lenders are reluctant to accept mortgage applications from borrowers on debt management plans. They are equally unlikely to offer mortgages to anyone with a completed debt management plan on their financial records.
This does not mean that qualifying for a mortgage during or after a DMP is impossible. It simply means that you need to target the right lenders and take on the right support, prior to penning your application.
DMP’s affect mortgage eligibility for a relatively obvious reason. Those who have a debt management plan, have so because they have found themselves in a position where they could not manage their debts. Those clients are considered high risk by lenders.
Any evidence of a DMP on your file within the last six years will have a negative impact on eligibility. Applicants with a DMP on their file are considered too risky to lend such significant sums of money to.
Fortunately, there is a growing market of specialist lenders for these kinds of borrowers. Rather than gauging eligibility exclusively on ‘binary’ checks, the UK’s more flexible lenders consider each case by way of individual merit. At UK Property Finance, these are precisely the types of lenders we work with.
There is no simple answer to this question, as it depends on an extensive range of factors. If you currently have a DMP in place, you may find your options limited. Most major lenders will not even consider your application.
Specialist lenders will rate your eligibility on the basis of; the size and nature of the DMP, how close it is to completion, your current financial status, your recent credit history, your ability to provide proof of income, the size of the deposit you can offer and so on.
It is important to consult with an established and experienced mortgage broker at the earliest possible juncture to improve your chances of being accepted.
Your partner’s debt management plan will only affect your eligibility if you are tied into any financial contracts or products together. For example, if you have a joint bank account, joint credit card or joint loan of any kind, their DMP may impact your eligibility for a mortgage.
This is something that is likely to be considered by any major bank or lender. Even if you, personally, have never set a foot wrong financially, the fact that the DMP technically extends to you is all that matters. The more dynamic and thoughtful lenders on the market will consider the situation more realistically.
If the DMP has nothing to do with you and came about through no fault of your own, it may have little to no impact on your eligibility.
The fact that you are on a debt management plan (or have a history of DMPs) will not necessarily affect the amount you can borrow. Maximum loan amounts are calculated in accordance with the financial status and current income of the applicant. You are not going to be offered more than you can comfortably afford to borrow. This may be calculated as a multiple of your annual income, or to some extent based on your savings, current equity and so on.
The deposit you will need, however, to pay to qualify for a mortgage will be affected by your debt management plan. Both in terms of the specifics of the plan itself and when it was (or will be) completed, you can expect very different deposit requirements. For example, if you are currently on a debt management plan but are in a relatively decent financial position, you may be expected to provide a deposit of 20% to 25%. If you completed your DMP several years ago and have an excellent credit history, you may only need to provide a deposit of 10%.
It is always worth considering offering a bigger deposit where possible. Doing so could open the door to more competitive interest rates and lower overall borrowing costs, while also making it easier to qualify in the first place.
It is common for customers with a DMP (or history thereof) to also have other credit issues. DMPs are only entered into when debt becomes an issue, by which time it is almost guaranteed that your credit history will have been damaged. It takes approximately six years for credit issues to be wiped clean, which is why DMPs almost always go together with other credit issues.
Specialist lenders who accept applications from customers with DMPs also tend to be more flexible where credit issues are concerned. It is the nature and severity of the credit issues that will determine their impact on your application. Additional credit issues running alongside a DMP need not count you out of the running.
Eligibility for a DMP mortgage is assessed in a similar way to any other conventional mortgage. The fact that you are on a DMP (and perhaps have a flawed credit history) will not be held against you.
You can expect to borrow a multiple of your annual income – typically limited to 4X or 5X your salary. The stronger your financial position and the bigger the deposit you provide, the more you are likely to be offered a good deal by the lender.
The lender will consider your current outgoings and any other debts you may have. They will need to ensure that you can comfortably afford the repayments, even if you face unexpected outgoings or a temporary shortfall in the future. There will also be additional borrowing costs (arrangement fees, admin fees etc.) to consider.
It is significantly easier to qualify for a mortgage after settling a debt management plan. Most of the same considerations will still be taken into account – your financial status, your credit history, your income, the nature of the DMP and so on. As you have cleared most of your outstanding debts, you will naturally be in a stronger position to take on a mortgage.
It is unlikely that settling your DMP will have much impact on your eligibility during the first year or two. Three years of ‘good behaviour’ after settling a DMP is usually enough to convince lenders you are a relatively safe bet. Anything less than this and they may be reluctant to accept your application, or offer you the best possible deal (low APR, competitive borrowing costs etc.)
At UK Property Finance, we know how difficult it can be to find a responsible and reputable lender that is willing to take your application seriously. With most major banks and High Street lenders, any trace of a DMP is enough to count you out of the running.
By working with an extensive network of specialist lenders, UK Property Finance can provide quick and easy access to competitive deals you will not find on the High Street. Save time, effort and money on your mortgage application, with the help and support of one of the UK’s leading independent brokers. Call UK Property Finance anytime for more information or drop us an e-mail and we’ll get back to you as soon as possible.