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.

Learn how a DMP works

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.

How a Debt Management Plan affects your credit

Find out if a Debt Management Plan is right for you

Whether you’re worried about your mortgage, your credit file or your monthly repayments, we’re here to help. Get free debt advice online or call 0800 316 1833 to speak to one of our advisors. We’ll explain the solutions available, check what you may be eligible for and help you choose the option that best fits your situation.

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FAQs

Why do I have to change my bank account?

If you have a current account with a company you owe money to, you will be required to open a new bank account. This is not only the case with a DMP but you should change your bank account if you are going to make reduced payments to a company that you also bank with. Banks have the “Right to Offset” so any money in your current account could be used to pay another debt with the bank.

Will I have to live on a tight budget during my Debt Management Plan (DMP)?

To enter into and maintain a successful Debt Management Plan you will need to live within a budget, however this is discussed with you openly. PayPlan are required to submit your income and expenditure details to your creditors.

Remember that when we’re negotiating your DMP, it is in your interest if we can show your creditors you are prepared to stick to a realistic budget to help repay your debts.

Will I have to tell my partner about the Debt Management Plan (DMP)?

We offer an absolutely confidential service from start to finish, so PayPlan will never force you to tell your partner about your debt situation, although support is available if you wish to tell them.

A DMP doesn’t usually affect your partner’s credit rating, but if you have a financial association, such as shared debts or guarantor debts, then it could do.

Whenever we contact a client we take great care to avoid divulging the nature of our call to anyone but the client.

Which debts are included in a Debt Management Plan (DMP)?

A DMP will only help you make reduced payments to your unsecured creditors, therefore the debts that can be included are:

Personal loans (loans taken to purchase cars are fine but Hire Purchase (HP) agreements cannot be included as they are secured against the item being purchased)
Credit cards
Store cards
Catalogues
Overdrafts

Secured debts can’t be included in DMPs because any payments on secured debts that aren’t met in full, can lead to the goods being repossessed. This website provides details on house repossession and car repossession, which are all consequences of not maintaining mortgage or hire purchase payments.

Is my home at risk if I enter into a Debt Management Plan (DMP)?

A Debt Management Plan is an informal arrangement which is not legally binding and although having a DMP could reduce the chance that the property would be at risk, there is a chance a creditor could take legal action such as securing a charging order on the property. This would secure the debt and a creditor could force the sale of the property at any point during a debt management.