Mortgages with a Debt Management Plan

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Getting a Mortgage When You Have a Debt Management Plan 

What is a Debt Management Plan?

Debt Management Plans are a type of financial agreement between you and your creditors, to allow you to pay off your unsecured debts. They are used when your debts become unaffordable for you to pay in the timescales originally agreed to.

You can try to set up a debt management plan by yourself, by contacting your creditors independently, however, more commonly, a licensed debt management company will set up this type of arrangement for you, which can be an easier route.

How much does a debt management plan cost?

Debt management companies ordinarily charge a fee to arrange your Debt Management Plan for you. The cost varies between companies and some may even offer this service for free. Whether you pay or not, always ensure that the debt management company you use is authorised by the Financial Conduct Authority. 

The Debt Management company negotiates with your creditors to establish an acceptable minimum payment and most creditors will agree to this, although not all. When an agreement is reached, you make an affordable monthly payment to the Debt Management company, who distribute it between your creditors on your behalf, until your debt is repaid. Some companies charge an administration fee for this service each month.

Will a Debt Management Plan affect my credit file?

A Debt Management plan almost always impacts your credit report. Creditors won’t always agree to stop interest and late payment charges, as they consider you are breaking the terms of the original agreement. Some creditors even place a County Court Judgement or pass your account to a debt collection agency. 

Marks on your credit file are usually removed when the debts are completely paid off, but in some cases, it can take years.

Will anyone lend to me with a Debt Management Plan?

If you have a current Debt Management Plan in place, it will be more difficult to secure a mortgage, although it is possible with certain independent lenders.

Those specialist Mortgage Lenders who consider applicants with poor credit offer ‘bad credit mortgages’. In order to obtain a bad credit mortgage, however, you will likely have to offer a larger deposit and should expect considerable higher interest rates than other applicants. 

Lenders willing to consider those with debts often take into consideration how severe your adverse credit issues are, as well as the reason you got into debt. Those applicants who are in debt as a result of a life event such as divorce, death in the family, or illnesses and injuries are likely to receive more leniency than careless spenders. You are also often looked upon more favourably if you have a Debt Management Plan in place as it shows that you are committed to repaying your debts.

How do I improve my credit rating if I am on a Debt Management Plan?

There are a number of ways to improve your credit score prior to applying for a mortgage, but until your outstanding debt is cleared, the impact you have will be minimal.

Your priority should be to focus on resolving your credit problems. As Mortgage Lenders are concerned with the amount of debt outstanding, the lower your outstanding debt is before making a mortgage application, the more likely you are to be accepted.

Another thing to consider is that you shouldn’t take out any more credit agreements, for example credit cards and mobile phone contracts, whilst you have a Debt Management Plan. Each of these applications add searches on your credit file, which will have a negative impact on your credit score.

How can The Mortgage Brokerage help those with debt problems?

When you have a Debt Management Plan or a history of adverse credit, it can be a daunting task to find a Mortgage Lender who will help you. High street lenders rarely offer mortgages to those with bad credit and the independent mortgage market is less accessible to individuals. 

At The Mortgage Brokerage, our experienced Mortgage Brokers can offer you clear, friendly mortgage advice specifically targeted at those with credit issues. They have access to specialist Mortgage Lenders who are flexible to your needs and can prevent you from further impacting your score by applying with the wrong type of lender. 

As well as finding you a competitive deal that matches your circumstances, we also support you throughout the whole mortgage application process. We can take care of much of the administrative tasks and communication on your behalf, to give you a smoother path into your new home. 

Your home may be repossessed if you do not keep up repayments on your mortgage.a a

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