Mortgages with a debt management plan

A debt management plan (DMP) is an informal agreement that is made between yourself and a creditor (someone who you owe money to) to pay off unsecured debts in installments over time.

It’s not a legal agreement and can be cancelled by either party at any time. 

A DMP is often used when you’re only able to make small monthly payments or have short-term financial issues and will be able to make repayments in a few month’s time.

It can be arranged either directly with a creditor or through a debt management company. If you go through a debt management company,  you have the option to pull all your debts together and repay more than one creditor.

DMPs can’t be used to repay ‘priority’ debts (mortgage or rent arrears, gas and electricity arrears, council tax arrears, income tax or VAT arrears, TV licence arrears, court fines or maintenance arrears), but are commonly used to help settle money owed on credit cards, bank loans, mobile phone contracts or store cards. 

There’s no obligation for a creditor to agree to a debt management plan and they’re not required  to freeze interest or further charges (whereas with an IVA, no further debt can be added), meaning that the amount owed can continue to increase. However, some creditors may choose to freeze the interest and hold off on extra charges if you’re good with making regular payments.

A DMP will not necessarily be noted on your credit file, unless a creditor specifically asks for a note to be added. However, what can be seen by other lenders and anyone who runs a credit check on you is that you've been making underpayments each month. 

If you have any other credit issues like late or missed payments or arrears that exist alongside a DMP, these stay on your credit file for a period of six years. After this period, they can't be seen on a credit check, but a mortgage lender might ask you if you’ve ever had any. It’s always best to be honest about this, as it’ll save you time and disappointment further down the line.

A DMP isn't a legal agreement, so there’s nothing to stop you applying for a mortgage while you’re repaying it. That said, you must be able to meet the mortgage lender’s lending criteria in order to be approved, and credit issues can make it a complex application.

A DMP isn’t a formal agreement, you don’t need to wait until it’s been settled to apply for a mortgage.

But if you have already settled your DMP, you may still find that the impact upon your credit rating of missed payments, underpayments, defaults or arrears make it difficult to get a mortgage with a high-street lender or broker.

It all  depends on how recently your DMP was put in place and whether the credit issues as still showing on your credit file (any issues stay on your report for six years).

Even when you’ve settled your DMP, it’s still recommended that you work with a specialist broker who can help you to find a lender who’s willing to accept applicants with adverse credit. That’s where we come in! Our Mortgage Experts have plenty of experience getting mortgages for people with DMPs. Make an enquiry to get started.

Sometimes a low credit rating means a lender might want you to put down a larger deposit. That can be because they’re offering a lower loan-to-value (LTV) mortgage.  

But whether or not you’ll have to put down a larger deposit depends on your unique situation, and also the lender you’re applying for a mortgage with. It will mainly depend on what the other credit issues you could have on your credit file alongside the debt management plan – when these issues were and how much money was involved. 

Our Mortgage Experts will get to know your situation and advise you on the best lender for any bad credit issues you might have. Read more in our Guide: How Does Bad Credit Affect Loan-to-Value?

Usually, the higher your credit score, the easier it is to get approved for a mortgage. So it’s always a good idea to do what you can to improve your score before applying if you can. If you’re really pushed for time, and have a low credit score but need to get a mortgage soon then make an enquiry and we'll look at your options.

Here are some top tips for improving your credit score with a DMP:

• Pay off any outstanding debt in full (including credit cards, loans, and similar). If that’s not possible, just pay as much as you can.

• Make sure you’re listed on the electoral roll. 

• Consider reviewing the number of credit cards and accounts you’ve got open. Even if they don’t have outstanding balances. 

• Use your available credit in a sensible way. For example, make small purchases on your credit card and pay off the balance in full each month. That can help build your score because it shows that you’re making repayments on time.

Read more tips on boosting your credit rating before applying for a mortgage.