Given how personal debt has risen over the last 10 years, it’s no surprise that homeowners are increasingly turning to remortgaging as a way of servicing debt. However, it’s not as simple as just applying to remortgage, particularly if you have debt management plan in place.
In this short guide we will explain how you can remortgage while on a debt management plan, but also what you need to be aware of to improve the chances of approval.
The bottom line is, a remortgage with a debt management plan (DMP) isn’t the right choice for everyone, so in this guide we will explain the different options available and what they involve.
How to remortgage with debt management plan
Before we get into the detail, it’s important to understand that most high street lenders will not offer loans to applicants with debt management plans. This means if you are with a high street lender already and wish to remortgage, you will probably have to switch lenders.
There are lenders in the UK who will let you remortgage with a debt management plan. It is possible. But, if this is the route you decide to go down, it is important to work with a specialist advisor who understands this market.
Our panel of advisors have access to mortgage lenders who have offered remortgage deals to applicants with debt management plans in the past. This also means our advisors have knowledge of how best to prepare an application that is likely to be considered.
For some initial free advice, please answer these 5 questions and an advisor will get in touch with you.
Now let’s get back to the crux of the matter…
Can you remortgage on a debt management plan?
Yes, you can remortgage if you are on a debt management plan. A new lender will need to see that you have maintained the payments on the plan in a satisfactory way.
You will need to obtain a statement of payments from the company managing your debt management plan and this statement should also show the outstanding balance.
Remortgaging to eliminate an existing DMP
You can remortgage to pay debt, where you have an active debt management plan. A debt management plan is typically an arrangement where your outstanding commitments are combined together with one debt management company.
The debt management company will contact creditors on your behalf and negotiate lower payments and reduced interest charges. This is a course of action only taken when somebody is genuinely struggling with the level of outgoings and as a method to avoid court action for non-payment.
The debt management company do make a charge for their services and entering into a debt management plan will have a negative effect on a person’s credit record.
Some mortgage lenders will allow you to borrow extra funds to clear your debt management plan completely so you should speak to an adviser to discuss if this is the best course of action for you.
If you do decide to remortgage with a debt management plan, this could potentially help you get your debts paid off faster and eliminate any payments to the DMP company.
But, if this is what you decide to do, you need to make a measured decision on whether this is actually financially better sense. For example, will you be paying more or less in the long run?
This is where professional advice is an absolute must.
What lenders offer a remortgage to applicants with an active DMP?
Just like with any other mortgage application, a remortgage will be assessed on your ability to afford it. All lenders do this to make sure applicants can afford to make repayments.
If you have high monthly outgoings that are being paid off on the debt management plan, it means you don’t have as much disposable income… therefore present a higher risk to mortgage companies.
This is why so many lenders will not consider offering a remortgage to applicants with an active DMP.
But some still do…
All of the ones that do are referred to as specialist lenders and are the types of companies that our advisors work with.
If you are on a debt management plan, then remortgaging could be a way for you to release equity in your home to help clear the debt. By doing so, you will no longer have an active DMP, but will have settled the agreement.
By remortgaging, you can get the finance to clear the debt, but also eliminate any risk of having creditors take legal action against you for outstanding money.
Sometimes a debt consolidation loan doesn’t make sense!
A professional adviser will work with you to decide if a consolidation loan is right for you.
A credit card debt consolidation will not make sense if:
- you cannot afford the new loan payments.
- you end up paying much more overall.
- you would be better off rearranging your debts rather than taking a new loan.
You should always consider the downsides along with the advantages of a consolidation loan mortgage secured on your property. Consider what could happen if your circumstances changed meaning your home could be at risk if you do not keep up with repayments.