Mortgages with Debt Management Plan

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Mortgages with a Debt Management Plan 

What is a Debt Management Plan?

A Debt Management Plan is an agreement facilitated between yourself and your creditors, usually by a third party debt management company, to pay off your unsecured debts. They are generally used when you cannot afford to pay off your debts in the timescale that you originally agreed to in the various loan agreements.

You can choose to instigate a debt management plan with your creditors by yourself, however, it is often easier and more common to use a licensed debt management company, particularly where you have debt with a number of different creditors.

How much does a debt management plan cost?

Most debt management companies charge a fee for the arrangement of your Debt Management Plan, which will vary between companies, although you may find that some offer this service for free. It’s important to be certain that whichever debt management company you use is authorised by the Financial Conduct Authority. 

The debt management company will negotiate with each of your creditors to try to establish an acceptable minimum payment. You then make one, more affordable monthly payment to the debt management company each month and they distribute this money between your creditors on your behalf, until your entire debt is repaid to all creditors. In some cases you may be charged an administration fee for each monthly payment.

Will a Debt Management Plan affect my Credit File?

When you take out a Debt Management plan, it’s important to realise that your credit file will usually still be impacted. Creditors don’t have to accept your offer of a lower monthly payment and whilst many will stop interest and charges, some will continue to charge fees due to the fact that you are breaking the terms of the original agreement. Some may even pursue a County Court Judgement through or pass your debt to a debt collection agency.

In most cases any notes on your credit file will be removed once the debts are completely paid off, however, this could take a number of years.

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Total Home Loans are a national mortgage broker with whole of market access. Their combined experience of over 50 years in the mortgage and financial services industry means they have an enviable reputation and one which makes them well-placed to find the most suitable mortgage solution for you.

Will anyone lend to me with a Debt Management Plan?

It is likely to be more difficult to secure a mortgage when you have a Debt Management Plan in place, although it is possible. As your credit score will have been impacted by defaulting on your original credit agreements, other lenders will see you as high risk and are therefore less likely to lend to you. 

There are specialist Mortgage Lenders who will consider those with poor credit. They may offer what are sometimes known as “bad credit mortgages”, and you will usually need a larger deposit and be subject to higher interest rates than other applicants. When you apply for a mortgage, the lender will usually consider both how severe your adverse credit issues are and the reason for the debts.

If you have experienced a life event such as divorce, illness or death in the family, which has directly caused your debt issue, for example, you will usually be looked upon more favourably than those who have been careless with their spending. Paying towards a Debt Management Plan may also be viewed more positively than lots of defaults, as it shows that you are making an effort to repay your debts.

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

There are a number of things that you can do to work towards improving your credit score, but you are unlikely to achieve a good credit rating until all of your outstanding debts associated with the Debt Management Plan have been completely cleared. 

The best thing to do is to try and rectify your credit problems as soon as possible. If you prioritise repayments on your Debt Management Plan then you may be able to pay it off sooner. As the size of your debt will also be considered by Mortgage Lenders, the more you can reduce your remaining debt before making a mortgage application, the less risky you appear.

It’s important not to take out any further credit agreement, such as credit cards or even mobile phone contracts, whilst you have a Debt Management Plan in place. These will all require searches on your credit file, which will further impact your overall score.

How can a Mortgage Broker like Total Home Loans help?

As high street lenders rarely offer bad credit mortgage products, our experienced brokers can help you to find those specialist Mortgage Lenders who are more flexible to the needs of those with poor credit. We have access to a wide range of independent lenders and can ensure that you obtain a competitive deal on a bad credit mortgage.

We also provide support and guidance throughout the whole mortgage application process, as well as taking care of much of the administrative aspect of your application. 

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

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