Does a DMP Affect Your Mortgage?
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A Debt Management Plan (DMP) is a debt solution that doesn’t include secured debts, which are debts secured against property that you own. This includes things like cars (auto loans) and property, meaning that if you’ve got a mortgage your DMP won’t include your mortgage repayments.
I’ve already got a mortgage – will my DMP affect this?
If you’re already in a mortgage before you enter into a DMP, your mortgage payments will be factored into your outgoings before your monthly DMP payment is decided, allowing you to pay your mortgage alongside your DMP payments. This means that you’ll get a fair, affordable and realistic amount to pay back each month for your DMP rather than a payment that you can’t afford, as this could cause you to struggle to make mortgage payments.
What if I haven’t got a mortgage but want to get one while I’m in a DMP?
It’ll be very difficult for you to get a mortgage if you’re already in a DMP. Not only will you find it difficult to get the money together for a deposit, but you may also have to reduce the amount you’re paying into your DMP so you’ve got the money for mortgage payments – something your creditors aren’t likely to be happy about. Having said this, you may not have to reduce your DMP payments if your current rent is higher than your estimated mortgage payments.
What’s more, even if you do apply for a mortgage the lender will see that you’ve been making reduced payments to your creditors. Chances are your lender will view your debt as a negative factor when considering lending you even more money, making it unlikely they’ll be willing to lend you a large amount of money for a mortgage.
What if I’ve had a DMP in the past but I’ve finished paying it off?
Getting a mortgage after you’ve completed your DMP is a much easier prospect. You won’t have payments to keep up with, and you’ll have your full income available to save up for a deposit.
The only thing to bear in mind is the effect that being in a DMP previously will have on your credit score. As credit scores are usually the first thing a lender will look at when deciding whether or not to lend you money, it means that entering into a DMP in order to repay your debts might make it harder for you to get a mortgage.
This doesn’t mean to say that there’s no chance of you getting a mortgage while you’re in a DMP. If you do apply for a mortgage and get rejected, you might want to consider a mortgage lender that’s prepared to lend to people with poor credit ratings. There are plenty of ‘poor credit mortgage’ providers in the UK who are happy to lend to people with less than ideal credit ratings; the catch with these is that they usually require larger deposits to secure, as well as having higher interest rates.
Alternatively, you can improve your credit score over time until it’s good enough for you to get a mortgage with better interest rates and a lower deposit. The obvious downside to this is that you’ll have to wait longer before you can apply for a mortgage, so it’s worth weighing up the options and thinking about how quickly you need a mortgage before you make a decision.
How long will the DMP remain on my credit file?
The DMP itself won’t be registered on your credit file, but there are certain types of information that the creditor you’re making monthly payments to might record on it. These include:
- DMP ‘flag’
A creditor might include this on your credit report to show that you’re repaying your debts through a Debt Management Plan – they can only add this, however, once they’ve accepted your offer of repayment. Once your DMP is complete, this will be removed and the accounts themselves will be marked as closed. They will remain listed for six years from the settled date.
- DMP payments
Any payments you’ve made towards the debts in your DMP will be logged on your credit file. This will also include any missed or reduced payments, so it’s important that you make your DMP payments in full and on time, every time.
- Payment defaults
If your DMP fails, which means that you fail it due to missing too many payments or failing to pay enough into it, this will remain on your credit file for up to six years.
If you’re considering entering into a Debt Management Plan, or want to find out more about any of our other debt solutions, then give us a call on 0800 280 2816. Our phone lines are open between the hours of 8am to 8pm Monday to Friday and 9am to 3pm on Saturdays.