Being in debt doesn’t mean that you can’t have dreams. So if you’re in debt and hoping to get on the property ladder then it’s natural that you may think “Can I get a mortgage if I’m on a debt management plan?”
There isn’t an easy answer to this question because every situation is different.
However, we can tell you a bit about what your chances are.
Credit ratings and mortgages
The first and possibly the biggest barrier to getting a mortgage when you’re on a debt management plan (DMP) is that your credit rating is likely to have taken a bit of a beating. A DMP means that you’re likely to be paying less than the originally agreed amount towards your debts, so this will more than likely be recorded on your credit history every month.
Having a low credit rating doesn’t mean you can’t get a mortgage but it makes it harder, and also rule out the best deals, and can also can rule out the best deals in terms of interest rates as they tend to have the highest expectations of creditworthiness.
Mortgage deposits when you’re in debt
There was a time when it was possible to get 100% mortgages, which meant you didn’t need to put any money down upfront. Those days are gone, so it’s pretty likely that you’ll need to have to put down a deposit if you’re wanting to qualify for a new mortgage.
The availability in the range of mortgages usually goes up in line with the amount of money you can put down as a deposit, but if you’re in debt and on a DMP it may be that you won’t have the money available to save up for a deposit.
If you do have a lump sum you could use then it’s worthwhile taking some professional mortgage advice to help determine if it’s better to use it to pay down your debts and wait a little longer to get on the property ladder, or move forward with the best mortgage option available at the time.
One other thing to consider is for people who currently have a mortgage; some providers will allow you to review your borrowing with them even at the end of your current deal and take out a new more affordable product.
Will my debt count against me in a mortgage application?
This would depend on the mortgage lender but it’s quite likely it could.
If you apply for a mortgage then lenders will want to know all about your financial details and will assess the affordability of any new mortgage alongside your current borrowing.
In some instances it’s possible to incorporate some of your existing borrowing within a mortgage to lower your overall monthly payment. However you’ll need professional advice on whether this is a good solution for you.
It’s not that you’re not allowed to have debts with a mortgage. However it’s likely to mean that mortgage lenders will see you as more of a risk as you’ve got debts to deal with alongside any potential mortgage that they might lend to you. So again, good advice is key.