Debt Management Plan and obtaining a mortgage

silvercup

My husband and I are FTB and are at the very outset of looking at mortgages.

Affordability wise we are fine and we both have a good credit score but my husband is currently in a voluntary Debt Management Plan through StepChange, owing 5K in total.

We spoke with an independent mortgage broker (fee charging if we go with him) who said that the DMP would only knock out a couple of lenders - he named HSBC and the Post Office as an example - but thought that overall we would be able to access most of the market.

However I have just had a brief conversation with London and Country brokers (commission based) who said the DMP would preclude about 90% of lenders.

So my question is, how adversely does being in a DMP affect your choice of lender?

If it's going to make a real difference to what mortgage we can find, there is the option of us clearing the 5K out of what we have set aside for a deposit. We would prefer not to do this as the repayments are small and very manageable but it could be done. The broker thought that once a DMP had been settled lenders could look at you immediately, but London and Country suggested 6 months. So again, differing information.

Edi81

Well forget the good credit score! Not worth the paper it!!!8217;s written on.

You need a broker that specialises in adverse. L&C are a vanilla broker and don!!!8217;t get involved in difficult cases.

FTBNow

I had a bit of adverse credit for our application and The Mortgage Genie were really good to us. You'd be surprised how not all high street lenders are ruled out.

kingstreet

It's going to depend on what is visible on what version(s) of his credit files. Get all three and put them in front of a decent broker who will be able to guide you on lender options.

silvercup

Thanks for the replies. I think we naively thought that as our credit scores are good (his is 977 / 999 with Experian) and our affordability is good (it looks like we pay way more privately renting than we would on a mortgage) that being on the DMP wouldn't make much difference!

Forgive my ignorance but are we going to definitely need to go through a broker then rather than look at deals directly?

FTBNow

I'd go through a broker just to make sure you don't take a punt and end up with a hard credit search on your file but no mortgage.

silvercup

Thank you FTBNow, that's what I thought too.

Another probably silly question - do lenders do a hard credit search for a decision in principle or just for the actual application?

FTBNow

Depends which lender you go with: we went with Santander who do soft check at DIP stage and hard at application stage, but some lenders do hard credit searches at DIP stage: such as Leeds BS.

amnblog

A few points

A DMP is a problem with Lenders
There should be options however
'Scores' from the credit agencies have no bearing on anything
Soft/Hard footprints are irrelevant - sooner or later you need a hard footprint
Approach a Broker with adverse experience

silvercup

Thanks amn.

Do you think we would be better off settling the DMP before applying for a mortgage?

We are considering offering them a full and final settlement for less than the 5K. If that were accepted then I understand that it would show on the credit file as being partially settled with the zero balance.

Would lenders still look adversely upon a recently settled DMP do you know?

Thrugelmir

silvercup wrote: »

Do you think we would be better off settling the DMP before applying for a mortgage?

Most certainly yes. In effect you are using the DMP as an interest free loan. Rather than paying back the money you owe on defaulted accounts. You are using the money for another purpose. The banks that you have defaulted on wouldn't consider you for a mortgage. Likewise other mainstream lenders would most certainly score you down from a credit profile perspective. Those lenders that would consider offering you a mortgage would load the interest rate accordingly. In line with their perceived risk of lending to you.

Partial settlement may impact your future ability to obtain credit through the same sources in the future. Once bitten twice shy as the old saying goes.