Getting a mortgage with a Debt Management Plan (DMP)?

Entering into a DMP will reduce the number of lenders which you can apply to as there are many which will not consider applications for people currently in an active DMP. However, it most certainly isn’t a deal breaker in terms of a mortgage no longer being available as there are many lenders that will still consider your application. 

A few important things to understand before starting to make mortgage enquiries whilst currently in an active DMP are as follows:

How long has the DMP been running: most lenders would want you to have been in a DMP for a minimum period of 12 months and made all of the agreed payments to demonstrate that the plan is working to improve your financial situation. There are however a couple of lenders that have a no minimum time period and applications are assessed on a case-by-case basis on how the accounts are being recorded to the credit reference agencies.

As you would expect the longer your DMP has been running then the easier applying for a mortgage will become. You will have more lenders available to you once the DMP has been running for 3 years providing that all payments have been made on time and no other adverse credit has been recorded against you for any other credit agreements outside the plan, this includes mobile phone contracts and household bills.

How many creditors are included withing the DMP?: This is extremely important when the DMP has been running for less than 3 years. The main reason for this is that the original creditors included are likely to record missed payments and defaults against you for not making the original agreed monthly payments when you purchased their services or bought their goods. 

All lenders appetite for risk is different and they will all have a different tolerance to how many defaults they will accept recorded against you within the past 3 years.

Type of commitments included within the DMP?: The type of commitments included within a DMP can also reduce the lenders available to consider your application. For example, if unsecured loans (personal loans) and hire purchase agreements such as car finance are included, this can make things more difficult because of the FCA’s classification of which type of commitments are classified as credit impaired and the permissions which a lender must hold to lend.

How much deposit are you likely to need: Applying for a mortgage whilst currently in an active DMP or if you have just completed one will likely mean that you will need a larger deposit to support your mortgage application. Exactly how much deposit required will be dependent on the above points, but as a guide you should expect to need anywhere from 10% to 30% deposit.

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