Mortgages after using the Debt Arrangement Scheme
Debt solutions are never a quick-fix, so it is natural to worry about the long-term consequences of using one. One of the most frequently asked questions about debt solutions is how they will affect the chances of being granted a mortgage. Getting a mortgage is the biggest financial decision many of us will make in our lifetime, so it is important to know how the process could be affected by debt. Although it can be more challenging, and you may need some time to rebuild your credit rating first, you will still be able to get a mortgage if you have made use of the DAS.
How will the DAS affect my Credit Score?
Entering into a Debt Payment Plan (DPP) through the Debt Arrangement Scheme will have a negative impact on your credit score, which will in turn affect your chances of getting a mortgage, and what interest rates you will be offered.
This is because when you enter into a DPP, your details are recorded on a public online register handled by the Accountant in Bankruptcy (AiB), the body in Scotland responsible for dealing with insolvencies. The register records the following details:
- Full name
- Date of birth
- Name of money advisor
- Start and end date of the DPP
Although the register is public, it is only published online – it is no longer standard practice to advertise insolvencies in a local paper. Additionally, it is highly unlikely that anyone would stumble across you in the register since, in order to search it, you must know the person’s first and surname. Not many people are aware of the register’s existence, so your acquaintances are highly unlikely to find out about your DPP unless you yourself make the decision to tell them. In some cases, it is possible to have details of your address removed from the register. If you think having your address published on the AiB database would put your personal safety at risk, it can be removed.
The register can be accessed by credit reference agencies and lenders, who will see your DPP as evidence that you have had some trouble keeping up with debt repayments in the past. This is why the DPP will affect your credit score. How long your score will be affected will vary, since the length of a DPP is determined by personal circumstances. Each person’s credit file holds six years’ worth of data, so it can take six years or more from your first payment for the DPP to drop off your file.
Improving your Chances of getting a Mortgage
During the course of a DPP, you will not usually be able to access further credit, and should ask the money advisor handling your case for advice. However, once you have made your final payment, there is nothing stopping you from applying for a mortgage.
As mentioned earlier, a record of your DPP could hang around on your credit file for a few years after its completion, so it is usually worth waiting a year or so before considering a mortgage. This is also a better idea in the long-run, because you will have had a chance to rebuild your credit score, hence be able to access better interest rates. There are plenty of steps you can take to give yourself the best chance of getting an affordable mortgage after a DPP:
- Check your own Credit File
Once your DPP has been paid in full, it is a good idea to request a copy of your own credit file to ensure your details are all correct and up to date. This can make a huge difference when applying for credit.
- Research Potential Lenders
If your credit history has been recently affected by a DPP, high-street lenders may refuse to offer you credit entirely. These banks tend to have more stringent regulations on who they will lend to. For this reason, you could consider researching alternative lenders – some companies specialise in providing mortgages for people who have struggled with credit in the past. The deposit and interest rate may be high, though, so it is worth seeking advice before making a final decision.
- Consider approaching a Broker
Asking a mortgage broker for help is another way to drastically improve your chances of being granted a mortgage after your DPP. Brokers will have working relationships with lenders, and may be able to secure you a mortgage with lenders who would not consider you had you approached them yourself. Do bear in mind that going through a broker will incur a fee, though.
If you are still unsure whether the Debt Arrangement Scheme is the right solution for you, you can get further advice by contacting a friendly Creditfix advisor on 0808 2085 198.