Mortgages with a Debt Management Plan
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Mortgages with a Debt Management Plan
If you have a Debt Management Plan in place or have had one in the past, you could be concerned about how that will affect your ability to buy a home. With good advice, though, you may find mortgages with a Debt Management Plan to help you achieve your property goals.
What is a Debt Management Plan?
A Debt Management Plan is designed to help you pay back debts in a manageable way. It’s an informal arrangement where you make a single monthly payment that gets split between your creditors.
A Debt Management Plan tends to apply to debts on finance, loans and credit cards – they aren’t usually available for rent or mortgage arrears. A dedicated provider will manage the plan for you and deal with the companies involved – you can find these providers online.
How much does a Debt Management Plan cost?
Debt Management Plans work in different ways. Some providers will charge a fee while others are free, so it pays to shop around and look at the options before going ahead.
Bear in mind that while a plan will be more affordable to you than paying back each debt individually, it will probably take longer to clear the debt. Interest and charges could still apply to the debts, so the amount owed can take a long time to reduce.
Will a Debt Management Plan affect my credit file?
Most creditors will advise the credit agencies about a Debt Management Plan, so it’s almost certain to appear on your credit record. Your credit rating will fall because of the plan and while you are repaying the debt you will find it very difficult to get credit.
Adverse credit histories stay against your name for six years, so even after you have completed the plan and repaid the outstanding debts, it will still be challenging to borrow money.
Debt Management Plans can have a fairly serious impact on your credit reports but they do indicate that you are taking steps to address your debts. Mortgage lenders usually have greater concerns about bankruptcy and Individual Voluntary Arrangements.
Will anyone lend to me with a Debt Management Plan?
Any kind of adverse credit will make it more difficult to find a mortgage, and many high street lenders won’t accept people with a Debt Management Plan. However, there are a number of specialist lenders who may be willing to look at your individual situation – so a mortgage isn’t impossible, depending on the details.
Securing a mortgage is much easier if you can put down a larger deposit – around 20% or more will really help your chances. In general, Debt Management Plan (DMP) mortgages have higher interest rates than standard products.
Ideally, you should wait to apply for a mortgage until your Debt Management Plan is complete. Your options will improve if you have been debt free for at least two to three years.
How do I improve my credit score if I am on a Debt Management Plan?
First, check what the credit reference agencies have on file about you. Make sure that the details are accurate and if not, ask for corrections.
If your Debt Management Plan is still running, you need to stick to it closely and make every payment on time.
Once you have cleared the debt, it can help your credit rating if you apply for small amounts of credit. Special credit cards are available for this. You should aim to use no more than 50% of your limit and meet every payment promptly. This should indicate that you have made progress to become a responsible borrower.
Be aware that numerous applications for credit can actually damage your credit score, as it suggests that you are in urgent need of money. Understandably, this will cause concern to potential lenders.
How can a Mortgage Broker like Home Financial help?
It can be challenging to get a mortgage when you’ve run into financial problems in the past. A Mortgage Broker can make all the difference because we know the lenders that are most likely to accept your specific situation.
We help you at every step. We start by setting your property budget and making sure that the mortgage will be comfortably affordable. Then we compare all the options and help you with the mortgage application, and are on hand to support you until you pick up the keys to your new home.
Home Financial NW Ltd is an Appointed Representative of Stonebridge Mortgage Solutions Ltd, which is authorised and regulated by the Financial Conduct Authority.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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