Why a DMP isn’t Always the Best Option if you’re Looking for a Mortgage
4 minute read
A Debt Management Plan (DMP) is a product many people who have experienced personal debt issues will be familiar with. However, if you’re not, a DMP is an informal agreement between you and your creditors to pay all of your debts over time. If you are struggling with debts like credit cards, loans and store cards then you can arrange a plan, usually through a licensed debt management company, to make one monthly payment which is divided between your creditors. After a set amount of time, your debts will be repaid.
A DMP can be a very effective way for those struggling with personal debt to get their finances back on track. For example, a DMP can be suitable if:
- You can afford your priority debts like rent, council tax or mortgage repayments but are struggling to keep up with non-priority debts like credit cards and loans;
- You’re facing creditor pressure and would like someone else to deal with your creditors for you;
- Making a single monthly payment rather than a number of payments to different creditors will help you budget.
What impact will a DMP have?
Although the DMP itself isn’t registered on your credit file, the record of debts included in the DMP will have a flag added to them. That means anyone checking your credit file will be able to see you are making reduced payments on those debts. That may affect your ability to access financial products such as a mortgage.
As you’ll be making reduced payments to each of your creditors, there’s also a risk that the creditors will log other information on your file. That could include:
- Missed payments – Missed payments may be registered on your credit file and will remain for at least 24 months and up to six years;
- Defaults – Creditors may also add defaults to your account which will remain on your credit file for six years.
- County Court Judgements (CCJs) – Although CCJs are less likely to be registered on your account, they can still be used if the creditor is unhappy with the payments they’re receiving.
Getting a mortgage with a DMP
Although there are certainly some situations when a DMP is likely to be the best option, that’s certainly not always the case. If you are currently on a Debt Management Plan or have completed one in the past, the damage done to your credit rating means you could struggle to find a mortgage.
Having a low credit rating doesn’t mean you can’t get a mortgage, but it does make it more difficult. One of the potential problems with a DMP is that it can stay on your credit record longer than other credit black marks such as missed payments. The details of court action and defaults often associated with a DMP will only be removed from your credit records six years from the date they occurred, which can make it more difficult to get a mortgage.
Is a bad credit mortgage a better option?
These days, there are a number of lenders out there that provide mortgages specifically for those with adverse events on their credit records. These are known as bad credit mortgages. The availability of this type of homeowner loan means that even if you have black marks against your name, accessing a mortgage may still be an option.
If you’ve missed a number of payments in the past then the potential impact on your credit rating is likely to be less severe than a DMP. However, even if you do require a DMP or an IVA to repay your debts, a bad credit mortgage could still be an option for you.
Discuss your situation with our team
Of course, everyone’s circumstances are different, but before you make up your mind, it’s certainly worth giving us a call. We can help you consider whether a DMP or a bad credit mortgage is likely to be right for you. For no-obligation advice, please get in touch with our team.