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Can you get a mortgage after a debt management plan?

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 your plan is finished, your debts will be cleared in full. You may be wondering how this debt solution affects buying a home in future.

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 may be certain restrictions on what you can get in terms of the loan amount and the interest rate that the mortgage lender charges on top of your repayments.

If your credit score is low, mortgage providers will usually offer higher interest rates than they would to people who have a high credit score. This means the amount you pay back each month will be higher than if you didn’t need a plan.

You can use comparison sites, such as Compare the Market or MoneySuperMarket, to see what interest rates are available and as a guide to how much you will be paying.

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

Before you apply for a mortgage, it’s important look at your current credit report.

Your credit report will show any payments that you’ve missed, made late or if you’ve been in a debt solution. If the companies you owe money to applied defaults to your account, these will show on your credit report too. Any markers, defaults or notices will show on your credit report for six years from the date they were issued.

You can read more here about how a DMP affects your credit rating and how you can 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 TransUnion – 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 get it corrected immediately to give your report the chance to update before you apply for a mortgage.

Go for the lower end of your budget

When you’re looking at properties, it’s a good idea to consider properties that sit at the lower end of your affordability. Having a larger deposit means that your total mortgage balance will be lower, so your monthly payments will be too!

Use a mortgage broker or financial advisor

Applying for a mortgage 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.

Most brokers charge a fee – it’s usually around £400- £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.

Normally, you won’t pay anything until you’ve applied for a mortgage and received a mortgage in principle. Using a broker 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.

Quick mortgage glossary 

Mortgages can be complicated, and there’s a lot of terms you might not have heard before.

Here are a few terms you might see while looking at mortgages:

    • Arrangement fee – This is a charge issued by a mortgage provider after they’ve accepted your application. It covers the cost of them arranging your mortgage and can vary between lenders. It’s 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.
    • 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 from the mortgage provider. You’ll pay this back as part of your monthly payment.
    • 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.

    Let’s make life more affordable

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