Will a debt management plan stop me getting a mortgage?
If you can no longer afford to repay several unsecured debts as agreed, a debt management plan could lower your payments to an affordable level again.
However, there are some downsides to a debt management plan. Firstly, making smaller payments over a longer timeframe could cost you more in total - unless your lenders agree to freeze/reduce interest on your unsecured debts.
You can find out more about debt management plans here.
Furthermore, breaking your original agreement and making reduced payments will also damage your credit rating for up to six years - which could affect your ability to get further credit and some financial products.
As a result, entering a debt management plan could well stop you getting a mortgage - particularly in the current climate, when many lenders are being more cautious than ever when it comes to lending.
Getting a mortgage on a debt management plan
When banks and other lenders are looking at who to lend to, they want to be confident that they'll get back whatever they lend to a customer in full (plus interest).
Different mortgage lenders have their own criteria for deciding who they will lend to, based on things such as the size of a would-be borrower's deposit, the amount of debt they're carrying, their income - and their credit rating.
There's more information about your credit rating on this page.
Many mortgage lenders in the current climate will be unwilling to take on customers with a damaged credit rating or a history of debt problems, as they'll be likely to consider them too much of a 'risk' - and if you enter a debt management plan, your credit rating will be affected.
If you've had a mortgage application rejected while you're on a debt management plan, it could be a good idea to wait until your plan is over, so you can take steps to repair your credit rating before applying again once your debt problems are behind you.
I already have a mortgage. How will debt management affect me?
If you already have a mortgage, and you're thinking about entering a debt management plan, you shouldn't have to worry that your monthly debt management payments will affect your mortgage payments.
This is because your payments towards a debt management plan (if your unsecured lenders accept it) will be calculated according to how much money you have left after you've covered the cost of your essentials (e.g. rent/mortgage, food and gas & electricity). As a result, you won't be paying more towards your debt management plan than you can afford.
If you have any more questions, you should get some professional advice.
Tags: debt, debt management plan, mortgage, mortgage payments