Possibility of getting a mortgage with a DMP

Jimby509

Current situation:-  Renting for £750pm and the landlord wants to sell in two years time, we would like to buy.  The property is probably going to be worth around £220,000 as an estimate.

We have combined incomes of £44,000pa and will have a saved deposit of £40,000.

I currently have £22,000 of debt (credit cards and loans) and this amount is not going down much due to CC interest as the interest free periods expiring on the cards.  It may seem like a no brainer to pay off the debt with the deposit savings but the money saved is locked in a help to buy ISA and we would lose 25% bonus, it is also in my wife's name and I'm the one who wracked up the debt (bad mental health, now sorted and burying head in the sand).

My credit file is spotless, no late payments or CCJs etc.  However I am finding it impossible to pay down the debt.  I spoke with Step Change and they recommended a DMP which will destroy my credit file.

If I enter a DMP and manage to pay off the debt what are our chances of getting a mortgage given my credit file will show defaults?  We will have a 20% deposit and an okay if a little low income of £44,000

Thanks for any input

ACG

It should be possible...
BUT your options will be limited until you have been in the DMP for 12 months. Most lenders want to see 1-2 years of the DMP being managed well. Some lenders have no minimum requirements but depending on how many accounts there are and how long it takes for them to default that could be another problem. 

Appreciate what your saying about the debt being yours but what about if you were to reduce your deposit down to 15%, make a dent into the debt and with the lower repayments use that saved money to throw at the debts and get them paid down? 

I do a lot of bad credit mortgages. You are a family unit - for better, for worse and all that. Its never nice when you see one side giving the other side a dig about their debt. In this case, it seems to be you digging yourself. Understandable, but ultimately you need to look at what is right for you both, not necessarily what will make you feel better. 

I can not advise on debt so take what I say with a pinch of salt. DMPs can be really useful. But applying for one on the cusp of making a mortgage application is not ideal. 

Isthisforreal99

People with DMP's can get a mortgage but at higher rates and after a certain period of time.

The problem you have is lenders won't entertain a DMP until you have defaulted which in itself will wreck your credit file. They won't default you until a few months of missed payments and the time you agree a DMP you gould be 6+ months down the line which makes it more recent in terms of applying for a mortgage.

Note also that if you are financially linked to your wife through joint accounts it will potentially affect her credit rating also.

Was there a particular reason you chose saving over paying down the debt?

Finally, are you sure it's a help to buy isa? My understanding is that the max you could save was £12,000 plus £3,000 government too up

Jimby509

Thank you both.

Just to give you an insight, most of my debt is due to an gambling addiction I had several years ago.  I got treatment for this but I really hit rock bottom and had a mental health crisis at the time.  This is now in the past but the debt lives on.  

The deposit is what we saved (It is a lifetime ISA, sorry not HTB ISA so has no limit apart from the £4000 per year +£1000 gov top up) over years with my wife mainly contributing and i don't want to use it to pay my horrible mistakes, also we would lose a big chunk out of everything we withdrew.  Maybe not the ideal but its a source of big guilt for me.

The accounts that would all default would be mine, not joint.

Isthisforreal99

Even without the DMP it could be a marginal call on getting the mortgage with £22k of debt on what salary? You say £44k combined but how much is yours? Your outgoings in servicing the debt may make affordability an issue, how much a month are we talking in terms of debt repayments?

Jimby509

Isthisforreal99 said:

Even without the DMP it could be a marginal call on getting the mortgage with £22k of debt on what salary? You say £44k combined but how much is yours? Your outgoings in servicing the debt may make affordability an issue, how much a month are we talking in terms of debt repayments?

My salary is £30,000pa.  Debt repayments have been around £600 per month but that will increase with the end of 0% balance transfer period.  I have found it exhausting making it work as there is no money left at the end of the month and life is getting more and more expensive with two growing kids.

The loans a about £8000 combined and will be paid off in just under two years.  The £14,000 CC just wont go down especially now the interest will increase.  I don't seem to be eligible for any more 0% CC to transfer the balances.

A DMP would be around £320 per month.  But obviously trash my credit file.

ACG

What about a loan to consolidate them? 

Jimby509

ACG said:

What about a loan to consolidate them? 

I just get rejected.  I think because my income is low and its unsecured.  I don't seem to be able to get any loan offers at all apart from very high interest ones for amounts under £5000

Isthisforreal99

Ultimately, your feeling of guilt won't get you a mortgage. What might is getting rid of that debt and applying with a smaller deposit even if that means a hit on the bonus.

I think it's time for a proper sit down with your wife and do some number crunching. You are in an unenviable position I'm afraid. 

Isthisforreal99

Just for some context on a £180,000 mortgage over 30 years the best rates mean you pay £864 a month vs the worst rates at £1,250 a month. With a recent DMP you would be at the higher end.

Jimby509

Thank you for this information.  It is very depressing  but I need to hear it.

I am really split down the middle.  It may seem like an obvious solution but so many factors here