Getting a Mortgage With a Debt Management Plan

A DMP (Debt Management Plan) is an agreement between an individual and creditors to repay unsecured debts, when financial responsibilities have become unaffordable. They are typically arranged by a debt management company who negotiates with multiple creditors on your behalf.

While this is a perfectly legal arrangement, having a DMP will impact your credit score, which can make it much more difficult to get a mortgage - especially while the DMP is active. Here we look at which, if any, lenders will consider applicants with a DMP in place, and how this could impact your mortgage options.

Can you get a mortgage with a debt management plan?

Yes you can, although it’s more difficult to find a suitable lender, as very few consider applicants with significant credit issues. While the DMP itself won’t show on your credit file, the credit agreements you’ve defaulted on by instigating the arrangement likely will. Some debt management practitioners may offer to petition the credit reference agencies to remove defaults that have DMP arrangements on them, but there is no guarantee this will work.

Lenders that offer bad credit mortgages, known as subprime lenders, are the most likely to offer mortgages while you still have a DMP. They will look at the reasons for your credit issues and likely want confirmation that you’re reliably repaying the debt management plan. That said, a DMP proves you sought financial responsibility over continuing to miss payments, so it’s likely to be viewed more favourably than those with multiple outstanding defaults and CCJs.

Once your DMP has been satisfied (completely repaid), the number of lenders available to you will increase. The more time that passes after the DMP has ended, the larger the pool of lenders available to you will be.

How long do you need to wait to apply?

This very much depends on the lender you opt for. There are a handful of bad credit lenders that may consider your application while your DMP is active. Some specialist lenders will also accept applications as soon as the DMP is satisfied, but most will prefer that you are at least 12 months clear of it before they will offer a mortgage. 

High street lenders, on the other hand, usually won’t look at applicants who have previously had a DMP until 3-6 years have passed. Your credit record only holds the most recent 6 years of your financial agreements, so after 6 years, a DMP would no longer be visible on a credit search.

Eligibility criteria

To get a mortgage after a DMP, you will need to meet the criteria below:

• Credit history - If you have a DMP you’ll likely need to use a bad credit mortgage lender, so they will already be expecting to see a history of adverse credit. Having a DMP will show that you are taking control of your finances, however, keep in mind that if you also have severe previous credit issues, even subprime lenders will be cautious. It’s a good idea to familiarise yourself with your credit file before making an application, and speaking to a broker, like ourselves, to steer you away from lenders who could leave a further mark on your credit record.
• Affordability - Lenders look at your income and outgoings for every mortgage application, but with a DMP they are likely to scrutinise it a bit more closely. Keep in mind that if you’re currently repaying a DMP, the repayments will be factored into your outgoings, so will impact your affordability, as well as your credit.
• Deposit size - Even among bad credit mortgage lenders, a DMP will be considered to be quite a severe credit problem, so you’ll usually need a larger deposit for this type of application. Many lenders limit the LTV of their loans for bad credit applicants, and you’ll often need at least 15%. This can be difficult to save if you’re repaying a DMP, as you’ll usually need to prove that you’re paying everything you can afford towards it. Guarantor mortgages or a gifted deposit may be a way around this.

How to get a mortgage with a DMP

Getting a mortgage with a DMP can be difficult, as criteria varies considerably from one lender to the next. To give yourself the best chance of securing a mortgage while you have a DMP, ensure you speak to a broker with experience in this area and keep on top of your DMP repayments. It’s also a good idea not to take out any further credit arrangements prior to your mortgage application.

If you are ready to get started on your mortgage journey, you can begin by compare the latest rates available or choosing the option to speak to a broker below:

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Will your maximum borrowing be impacted?

Although your borrowing won’t necessarily be directly impacted, keep in mind that lenders will consider your DMP repayments as an outgoing. This leaves less expendable income to repay a mortgage, which is likely to reduce the size of the loan you can afford to borrow. 

Enter your income into our calculator below but bear in mind that, with a DMP, you might only qualify for one of the lower income multiples:

Which lenders are available?

As mentioned, there are lenders willing to look at applicants with a DMP in place. These are usually building societies and specialist lenders, rather than high street banks. Although some high street lenders do consider applicants that are 12 months clear of their DMP, so long as they meet other criteria. 

Lenders who will consider applicants with a DMP in place include:

• Skipton - Will look at this type of application providing there have been no missed payments within the last 6 months
• Leeds Building Society - May consider applicants with a DMP, subject to account conduct and applicants having no other credit issues
• Pepper money - May consider applicants, so long as the DMP has been in place for at least 12 months and the borrower can demonstrate that they have missed none of the DMP repayments in this time

Lenders who will consider applicants with a satisfied DMP after 12 months include:

• Barclays - So long as no further credit issues have occurred since the DMP was satisfied
• Melton Building Society - Offer a ‘credit repair range’ of mortgages at a maximum of 70 LTV which may be open to those with a current DMP, subject to meeting other criteria
• Newcastle Building Society - Consider applicants after 12 months, subject to satisfactory credit search for that timeframe

At 3 years post DMP there are a substantial number of lenders, including many high street banks, available to most applicants, such as.

Lenders who will consider applicants with a satisfied DMP after 3 years include:

• HSBC
• Nationwide
• Scottish Building Society

Keep in mind that none of the above lists are exhaustive, and only show examples of some of the lenders available at each stage. For further advice about securing a mortgage with a DMP, please reach out to our team. 

Some lenders will insist on applicants being 6 years clear of their debt management plan before they consider lending. Keep in mind, however, that at this point, credit issues associated with your DMP should no longer show on your file, so as long as you’ve not had further bad credit since then, lenders won’t be aware that you ever had a DMP.

What interest rate to expect

Interest rates for bad credit mortgages are usually higher than standard mortgages, due to the additional risk that lenders are taking on. There is no set interest rate for bad credit, as each lender assesses different levels of bad credit differently. 

Some lenders consider DMPs, IVAs and bankruptcy to be equally significant credit issues, however, some lenders will look more favourably on DMPS. Especially if your missed payments are historic and your credit file is now in good order.  

Unlike other mortgage deals, bad credit interest rates don’t tend to be published. This type of lending is more bespoke, so rates tend to be decided on a case by case basis, to reflect the level of risk involved. 

It’s also worth noting that arrangement fees can be higher on bad credit mortgages, due to the detailed underwriting involved. 

Why choose Teito for your bad credit mortgage?

At Teito, we can help you with your debt management plan mortgage application, whether it’s satisfied, or you still have an active arrangement. We have access to those specialist mortgage lenders who are more flexible to DMP applicants, some of whom only provide mortgages through an intermediary, like ourselves. 

Other bad credit applicants chose Teito because:

• We compare rates and deals on the most suitable deals in just 60 seconds
• We have access to exclusive rates and deals that are not available to the general public
• Provider 5-star rated advice, based on ratings from Google, Truspilot and other reputable site-rating services
• We can secure you an agreement in principle in minutes

Ready to compare the latest rates for free and take advantage of a free, no-obligation chat with a broker who specialises in bad credit? Get started here.