Remortgage With a Debt Management Plan

Can You Remortgage With a Debt Management Plan?

Yes, it is possible to remortgage while you have an active debt management plan, though the process is more complex than a standard remortgage application. A DMP is an informal arrangement between you and your creditors to repay your debts at a reduced rate, and while it does not appear as a formal insolvency on public registers, it will have an impact on how lenders view your application.

Most high street lenders will decline applications from borrowers with an active DMP because it indicates difficulty managing existing debts. However, there is a growing market of specialist lenders who understand that financial difficulties can happen to anyone and who are willing to consider applications on a case-by-case basis.

The key factors that will determine your eligibility include how long you have been on the DMP, whether you have maintained consistent payments throughout the plan, the total amount of debt remaining, and how much equity you have in your property. Lenders will want to see evidence that your financial situation is stable and that you can comfortably afford the new mortgage payments alongside your DMP contributions.

It is also important to understand that having a DMP may result in missed payment markers, defaults or other adverse credit entries on your credit file. These additional factors will also influence which lenders are willing to offer you a remortgage and at what interest rate.

Speaking with a specialist mortgage broker who has experience with DMP cases is strongly recommended. They will know which lenders are most likely to accept your application and can help you present your case in the strongest possible light.

How a Debt Management Plan Affects Your Credit File

Understanding how a DMP impacts your credit file is essential for anyone considering a remortgage. While the DMP itself is not recorded as a specific entry on your credit report, the consequences of being on one will be clearly visible to any lender who checks your file.

When you enter a DMP, your monthly payments to creditors are typically reduced. This means you may be paying less than the contractually agreed minimum, which creditors can report as missed or partial payments. Over time, these missed payment markers build up and create a pattern that lenders can see.

Some creditors may also register a default on your account if they consider the DMP terms to represent a fundamental breach of the original credit agreement. A default remains on your credit file for six years from the date it was registered, regardless of whether the debt has since been repaid.

The impact on your credit score can be significant. Each missed payment marker reduces your score, and multiple defaults across several accounts can cause a substantial drop. However, the effect diminishes over time, and if you maintain consistent DMP payments and avoid taking on any new debt, your score will gradually recover.

It is worth checking your credit file with all three main UK credit reference agencies - Experian, Equifax and TransUnion - before applying for a remortgage. This allows you to see exactly what lenders will find and address any errors or outdated information before your application is assessed.

Some DMP providers add a notice of correction to your credit file explaining your circumstances. While this does not change the data on your file, it can provide context for lenders who manually review applications rather than relying solely on automated credit scoring.

Which Lenders Accept Remortgage Applications With a DMP?

The lending market for borrowers with a DMP has expanded considerably in recent years. While you are unlikely to secure a deal with a major high street bank, there are numerous specialist lenders who actively cater to this market.

Specialist lenders assess applications from DMP borrowers differently from mainstream providers. Rather than applying rigid automated criteria, many will manually underwrite each case, taking into account the full picture of your financial circumstances rather than simply rejecting based on adverse credit markers.

When assessing your application, specialist lenders will typically consider:

• Length of time on the DMP - A longer track record of consistent payments demonstrates reliability
• Payment history during the DMP - Maintaining every scheduled payment is crucial
• Total remaining debt - Lower balances are viewed more favourably
• Loan-to-value ratio - More equity in your property reduces the lender's risk
• Current income and affordability - You must demonstrate you can afford both the mortgage and DMP payments
• Reason for the financial difficulties - Circumstances such as illness, redundancy or relationship breakdown may be viewed sympathetically

Interest rates from specialist lenders will be higher than mainstream rates, reflecting the additional risk the lender is taking. However, they can still represent a significant saving if you are currently on your existing lender's standard variable rate, which can be considerably more expensive.

A whole-of-market mortgage broker with specialist adverse credit experience is the best route to finding these lenders. Many specialist lenders do not deal directly with the public and can only be accessed through intermediaries.

How to Improve Your Chances of Remortgaging With a DMP

While having a DMP creates additional hurdles, there are practical steps you can take to strengthen your remortgage application and improve your chances of approval.

Maintain perfect DMP payments. The single most important thing you can do is make every DMP payment on time and in full. Lenders want to see a consistent track record of meeting your obligations, and any missed DMP payments will seriously harm your application.

Build as much equity as possible. The lower your loan-to-value ratio, the more options will be available to you. If you can make overpayments on your existing mortgage or if property values in your area have risen, this could work in your favour. Aim for an LTV of 75% or below if possible, as this opens up significantly more deals.

Keep your DMP provider informed. Before applying to remortgage, speak with your DMP provider. They can provide a statement confirming your payment history and the expected completion date of the plan, which can be useful evidence for your mortgage application.

Avoid new credit applications. Each credit application leaves a footprint on your file, and multiple searches in a short period can make lenders nervous. Only apply for a remortgage once your broker has identified a suitable lender and is confident of your chances.

Gather comprehensive documentation. Prepare all your financial documents in advance, including bank statements, payslips, your DMP agreement, proof of DMP payments and details of all outstanding debts. Being well-organised shows lenders that you are taking your finances seriously.

Consider the timing. If your DMP is close to completion, it may be worth waiting until it finishes before applying. A recently completed DMP will still show on your credit file, but it demonstrates that you have successfully addressed your debt problems.

Work with a specialist broker. A broker experienced in adverse credit mortgages will know exactly which lenders to approach and how to present your application. This is not the time for a DIY approach to mortgage shopping.

Costs and Interest Rates When Remortgaging With a DMP

It is important to go into the remortgage process with realistic expectations about the costs involved. While remortgaging with a DMP is achievable, you should expect to pay more than a borrower with a clean credit history.

Interest rates for borrowers with an active DMP typically range from around 1% to 4% above the rates offered to prime borrowers, depending on the severity of the adverse credit, the LTV ratio and the overall strength of your application. While this premium may seem substantial, it needs to be compared with your current mortgage rate to determine whether remortgaging makes financial sense.

Beyond the interest rate, there are several other costs to factor into your calculations:

• Arrangement fees - Specialist lenders often charge higher arrangement fees, sometimes up to 2% of the loan amount
• Broker fees - A specialist broker may charge a fee for their services, typically between 0.5% and 1% of the loan amount
• Valuation fees - You will need to pay for a property valuation, usually between 150 and 1,500 pounds depending on the property value
• Legal fees - Conveyancing costs for the remortgage, typically 500 to 1,000 pounds
• Early repayment charges - Check whether your current mortgage has any early repayment penalties

Your broker should provide a comprehensive comparison showing the total cost of remortgaging versus staying on your current deal, taking all fees into account. Only proceed if the numbers clearly work in your favour over the medium to long term.

It is also worth considering that if you remortgage onto a fixed-rate deal with a specialist lender, you may be able to remortgage again to a more competitive rate once the fixed period ends and your credit file has had more time to recover.

Alternatives to Remortgaging With a DMP

If remortgaging with an active DMP proves too difficult or too expensive, there are alternative options worth considering before making any decisions.

Product transfer with your current lender. Your existing lender may offer you a product transfer to a new deal without the need for a full remortgage application. Because there is no new lending involved, some lenders are more flexible with their criteria for product transfers. This could save you from reverting to an expensive standard variable rate.

Wait for the DMP to complete. If your DMP is nearing completion, it may make more financial sense to wait. Once the plan is finished and some time has passed, your credit file will gradually improve and you will have access to a wider range of lenders and better rates.

Negotiate with your current lender. Contact your existing mortgage provider and explain your situation. Some lenders will offer a concession rate or move you to a more competitive product if the alternative is that you remortgage elsewhere. They may also be willing to extend your mortgage term to reduce monthly payments.

Consider a further advance. If you need to raise additional funds, your current lender may offer a further advance on your existing mortgage. This avoids the need to remortgage entirely and may be assessed under different, potentially more lenient criteria.

Seek debt advice. If your financial situation has changed since you entered the DMP, it may be worth reviewing the plan itself. Free debt advice is available from organisations such as StepChange, Citizens Advice and the National Debtline. They can help you assess whether your current arrangements are still the best option for your circumstances.

Whatever route you choose, it is essential to take professional advice from an FCA-regulated adviser who can assess your individual circumstances and recommend the most appropriate course of action.