Can I get a mortgage while on a DMP?

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Can you get a mortgage on a DMP?

Can you get a mortgage on a DMP?

Being in debt doesn’t mean that you can’t have dreams. So if you’re in debt and hoping to get on the property ladder then it’s quite natural that you’d start to think about whether you can get a mortgage if you’re on a debt management plan (DMP).

There isn’t an easy answer to this question because every situation is different, but we can tell you a bit about what your chances are.

Credit ratings and mortgages

The first and possibly the biggest barrier to getting a mortgage when you’re on a DMP is that your credit rating is likely to have taken a bit of a beating. A DMP means that you’re paying less than the originally agreed amount towards your debts, so this will more than likely be recorded on your credit history every month.

Having a bad credit rating doesn’t mean you can’t get a mortgage but it usually makes it harder and also can rule out the best deals, as they tend to have the highest expectations.

Mortgage deposits when you’re in debt

There was a time when it was possible to get 100% mortgages, which meant you didn’t need to put any money down upfront. Those days are gone, for now at least, so it’s pretty likely that you’ll need to have to put down a deposit if you’re wanting to qualify for a mortgage.

The chances of being approved for a mortgage usually go up with the amount of money you can put down as a deposit. So if you’re in debt and on a DMP it’s pretty likely that you won’t have the money available to put down as a deposit.

Even if you do have a lump sum you could use to pay, it’s likely that you’d be better off using it to pay down your debts and wait a little longer to get on the first rung of the property ladder.

Will my debts count against me in a mortgage application?

This would depend on the mortgage lender but it’s quite likely they would. If you apply for a mortgage then they’ll want to know all about your financial details and if they see you’ve got debts then most lenders will be less willing to lend to you.

It’s not that you’re not allowed to have debts with a mortgage. However it’s likely to mean that mortgage lenders will see you as more of a risk as you’ve got debts to deal with alongside any potential mortgage that they might lend to you.

So it’s pretty unlikely I’ll get a mortgage while on a DMP?

Yes, it’s probably going to be tough to get a mortgage if you’re on a debt management plan as your credit history will show that you’re currently in an arrangement to clear your debts through reduced payments.

Add to that the difficulty of raising a deposit then it’s not likely to be easy. Perhaps not being able to get even deeper into debt isn’t such a bad thing anyway. If you’re already in debt then taking on a new financial commitment could add to the stress.

So what should I do?

The best way to get yourself into a position to get on the property ladder would be to get out of debt as soon as possible. If you successfully finish your DMP, you’ll have a blank canvas in terms of monthly commitments and be in a much stronger position to save for a deposit and to afford the mortgage payments once you’ve managed to buy a house.

Once you get to this stage it’s worth thinking about how to improve your credit rating after a DMP (we’ll be blogging about this in the very near future) as there’s a good chance there’ll still be some negative stuff on your credit history even once the debts are paid off.

The important thing to remember is that your credit rating will not stay the same forever. While it might sound a bit cheesy, it’s best to take each day as it comes. Once you’ve finished your DMP you’ll be in a much stronger position and be better placed to qualify for a mortgage.

James Winterbottom has been a debt advisor for six years. Away from work he is an amateur app developer and writes fiction. James is a lifelong supporter of Huddersfield Town football club, which suggests he is either very loyal or very daft. He also likes to talk about himself in the third person in bio pages.

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  • Lady K

    If I were to sell my current property and in doing so, pay off my DMP – would this mean I could look at getting a normal ‘high street’ mortgage? Or do I need to look at those lenders that specialise in bad credit. I suppose what I mean is, have I messed up my credit by being in a DMP that I will have to wait for a mortgage for x number of years after it has been paid off? Stories of colleagues who have gone bankrupt or who have had CCJs are ringing in my ears!

    • moneyaware

      Hello Lady K

      Thanks for your question. You can read more about how a DMP affects your credit file here: https://www.stepchange.org/Existingclients/DMPclients/HowdoesaDMPaffectcreditfile.aspx

      Essentially, details of court action, defaults or missed payments will be removed 6 years from the date it happened, even if the debt hasn’t been fully repaid. Until then, you may find it difficult to get another mortgage or secure an attractive interest rate as lenders may see you as a higher risk customer.

      Thank you

      Becca

  • Sharon Brady

    We have jsut started a DPP. Sadly we need to now either do renovations to our house(black mould) or move. But if we sell we will not be able to afford a private rent and we would not be eligible to any help from the council or a housing association (selling means we make ourselves intentionally homeless), and we will not be able to get another mortgage despite possibly making 14k profit from selling our house – this would have to go on the DPP. So here we now have another 8 years in a house with a growing black mould problem and 2 ill children.

    • moneyaware

      Hi Sharon,

      Thanks for posting. I’m sorry to hear about this.

      It might be worth getting in touch with the provider of your DPP to see if they can offer you advice in this situation.

      Kind regards,

      Jen