Can you get a mortgage after a debt management plan?

debt management plan (DMP) is an effective, informal solution to clearing your debts. It allows you to combine your monthly debt repayments into one manageable amount and ensures that once the DMP is finished, your debts will be cleared. But if you intend on purchasing a home in the future, you may be wondering how this debt solution affects you.

Is it possible to get a mortgage after a DMP?

Yes, it is! You can get a mortgage after a DMP has finished but bear in mind that there will be certain restrictions on what you can get, in terms of the loan amount and the interest rate that is charged on top of your repayments.

For those people with a low credit rating, mortgage providers will usually only offer higher interest rates. This means the amount you pay back each month will be higher than if you had not had a DMP. You can use a comparison site, such as Compare the Market or MoneySuperMarket to see what interest rates are available at this moment in time, as a guide to how much more you will be paying.

There are things you can do to improve your chances of getting a mortgage though, to give you the best chance when you are finally ready to take that exciting first step and buy a home.

How to improve your chances of getting a mortgage after a DMP

Before you apply for a mortgage, it’s important to first review your current credit rating. The missed payments, your DMP is flagged against, will have impacted your credit rating. If you have defaulted on these credit accounts and used a DMP to repay them, this will remain flagged on your credit report for six years, from when it was issued.

You can read more here about how a DMP affects your credit rating and what you can do to improve it. For now, here are some simple things you can do, to improve your chances of getting a mortgage after a DMP:

Check your credit report

It’s very easy to check your credit report and this should be the first step before considering applying for a mortgage – whether you have had a DMP or not. There’s so much that can affect your credit rating, so it’s important you check everything is in order first.

Use one of the main credit report providers – Experian, Equifax or CallCredit – to check what is listed on your report. Look for things such as whether you are listed on the electoral roll, any credit products or defaults that should not be on there, and that all the information is up to date. If anything is wrong you will need to correct this immediately, to give your report the chance to update before you apply for a mortgage.

Go for the lower end of your budget

Perhaps you can stretch yourself to buy a property worth £170,000 but this will mean paying out your maximum budget and obtaining a larger mortgage. If you can lower your expectations and purchase a cheaper property this may benefit you. Not only will the mortgage be smaller but you can put a larger deposit down.

Having a larger up-front deposit will help your chances of obtaining a mortgage after a debt management plan. This is because you can reduce the loan amount and the risk considered by the lender.

Use a mortgage broker or financial advisor

Applying for a mortgage yourself can feel daunting at the best of times, even more so when you have a poor credit history. However, there are people who can help with the application and do all the hard work for you.

Bear in mind though that most brokers charge a fee – usually in the region of £200-£500. While this may sound expensive, they do have direct access to the market and know where to look first for a variety of difficult situations – possibly saving you money overall.

Most brokers will also not charge anything until they have put in an application for a mortgage, and obtained a mortgage in principle. This means they can look for deals for you, so you can get an idea of the cost and type of mortgage you can get. Check their charges before you ask them to look around for products.

A broker will also know which lenders are best to try first and which ones won’t leave a hard footprint on your credit report – which can have a negative impact on your rating. A hard footprint is a note that is made on your credit report, which tells other creditors that you have recently been seeking out credit or making applications. It can affect their decision to lend to you, as they may feel you are taking on too much credit at once and may be unable to pay them back later.

Mortgage providers who are more likely to lend to people with poor credit ratings

If you struggle to find a high-street lender that will accept your application, there are a range of lenders who specialise in providing mortgages to people with low credit ratings or a poor credit history. Here are some examples*:

  • Cambridge BS – Considers people with a low credit rating and also people with County Court Judgements (CCJs) of up to £5,000.
  • Legal & General Mortgage Club – Considers people with a low credit rating and also those who have had an IVA that has been satisfied in the past 12 months.
  • MBS Lending – Considers people with poor credit histories, as will CCJs up to £6,000 and even IVAs that are currently in place.
  • Metro Bank – This lender will consider those with bankruptcies and people with CCJs of up to £2,000.
  • Precise Mortgages – Considers people with a poor credit rating, as well as people with up to three CCJs in the last 24 months.
  • Vida Homeloans – Considers people with poor credit scores and those with CCJs on a report, if there have been none in the last 6 months.

There are many more, however, it is worth remembering that every application is different as your personal situation is reviewed and taken into consideration. This is something that a mortgage advisor can take into account though before sending off any applications on your behalf.

Quick mortgage glossary

Mortgages come with a huge span of complicated terms and jargon to get your head around. It’s always a good idea to feel in the know, when dealing with such a large potential debt.

Here we’ve broken things down with a list of the main terms to get to grips with, if you’re just starting to consider buying your own home:

  • Arrangement fee – This is a charge issued by a mortgage provider, once they’ve accepted your application. It covers the cost of them arranging your mortgage and can vary between lenders. It is usually paid on completion of your house sale and most people add it to their total mortgage amount.
  • Broker – This is an individual who can arrange a mortgage for you and search the market to find the best rate.
  • Deposit – An upfront amount of money to put towards your home, usually 10%.
  • Fixed rate – This is when the interest rate on your mortgage is fixed for a certain amount of time.
  • Interest – This is a charge on top of your mortgage repayment to ensure the lender makes back what they have loaned you.
  • Tracker mortgage – This mortgage tracks The Bank of England’s interest rate to offer you the best deal. It’s great when the economy is driving down interest rates but if things change you could see yourself paying a much higher amount than expected.
  • Valuation fee – This is a fee a mortgage lender charges to visit the property and value it, to check that the price you are paying is correct.
  • Variable rate – This is when the interest rate follows the trends of the current interest rates offered by the mortgage lender.

If you are looking for further advice, when it comes to getting a mortgage after a debt management plan then get in touch with one of our expert advisors here at PayPlan on, who can talk you through the limitations a DMP can impose on your ability to get credit and how you can rectify this.

*Information correct at time of writing.