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Can I get a Mortgage on a Debt Management Plan?

Deciding to take on a mortgage is one of the biggest financial decisions most of us will make in a lifetime, so it is vital to know how the process could be effected by debt.

During a Debt Management Plan

Debt Management Plans (DMPs) are an informal solution to debt, which means they are not legally binding. For this reason, you are not legally prevented from applying for credit, but doing so is usually a bad idea. This is because many DMP providers – particularly charities – expect you to commit to not taking on any further credit for the duration of your DMP. Your current creditors are also likely to look unfavourably on you if you apply for further credit, since this implies than you can afford to make repayments in full, despite offering them only reduced payments.

If you already have a mortgage when you enter into a DMP, it should not be affected. This is because DMPs primarily deal with unsecured debt, whereas a mortgage is a secured against your property. This means that should you default on your payments, your property could eventually be repossessed, allowing your mortgage provider to recover what you owe them. When working with a DMP advisor to develop a budget, and working out how much you could afford to put towards your unsecured debts each month, any mortgage payments you make should be taken into account.

After a Debt Management Plan

Once you have finished your DMP, you are once again free to apply for credit with no repercussions. However, years of making reduced payments towards your debts will have had a negative impact on your credit score, so most mortgage providers will be unwilling to offer you a mortgage. You may be able to find a provider by consulting a mortgage broker, but you will most likely be faced with a large deposit, and a high interest rate, not to mention the broker’s fees.

For this reason, it is usually best to take some time, and rebuild your credit score before you apply for a mortgage. This can be done in a number of ways:

  • Check your Credit Report

A copy of your credit report can be had from Equifax, Experian, or Callcredit for around £2. Request a copy as soon as you have finished your DMP, and make sure that all your details are correct – the file should show that all the accounts associated with your DMP are closed. You should also ensure that other details, such as your address, are correct, since even small discrepancies can have a negative impact on your overall score.

  • Register for the Electoral Roll

Being registered on the electoral register lets credit reference agencies know that you have a stable permanent address, which will boost your credit score.

  • Giving it some Time

Time can be a big help when it comes to your credit score. Your credit file covers six years of history, meaning that your last DMP payment will drop off the record six years after it has been made. Once the DMP is no longer on your file, your score will begin to creep back up.

  • Use Credit Sparingly

Experiencing problem debt can be enough to put anyone off applying for credit ever again, but using credit carefully is the best way to prove you can handle debt responsibly and rebuild your credit score in the process. At first, you will only be able to access high interest credit, but after proving yourself able to keep on top of this, your score will start to improve and open up better deals. You might decide to start with a ‘credit building’ credit card. These are high interest credit cards offered to people hoping to build their credit scores. Make sure you pay the balance on a card like this in full every month to avoid expensive interest payments.

  • Do not Apply for too much Credit too soon

If you apply for credit and get rejected, it can be tempting to try somewhere else straight away, but this can actually sabotage your efforts to improve your credit score. This is because applying to multiple lenders in a short space of time can make you appear desperate for money. Instead, try using an eligibility checker before applying.

For more advice on whether a DMP could be the right option for you, contact a friendly Creditfix advisor on 0808 2085 198.

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Please select the total sum of your debt

Less than £6,000
£6,000 - £20,000
More than £20,000

How many creditors do you have?

less than 2
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What kind of debts do you have?

Credit Card
Store Card
PayDay Loan
Personal Loan
Gas/Electric/Water Arrears
Income Tax / National Insurance
Tax Credit/Benefit Overpayment

What type of property do you live in?

Private Rented
Living With Parents

Where do you live?

Northern Ireland

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