The right way to help customers with DMPs get a mortgage

Households across the UK have felt the pinch of rising prices and the increasing cost of living. But as we begin to see the market stabilise, one thing is clear – these financial pressures have contributed to the prevalence of household financial debt. If you are anything like us, you’re probably wondering how many people this has impacted post-COVID. Well, in Q4 of 2023 alone, there were 24,910 individual insolvencies in England and Wales, 662 more than in the previous quarter. This recent data from the House of Commons Library showcases how, now more than ever, it is essential to prepare yourself for the rise in specialist mortgage applications. Specifically for borrowers who seek support from Debt Management Plan (DMP) firms. Perhaps it’s unsurprising that the popular criteria search for brokers on the L&G portal is for clients in an active DMP. That search term alone had 400+ searches in March 2024 and is the sixth most searched. But there are not many lenders out there with solutions for these cohort of customers, which is why this blog will break down: 

• DMP basics and how it differs from IVAs. 
• How can you tell if your client is on a DMP? 
• What mortgage lending solutions are available for DMPs? 
• Case study – how Bluestone helped a customer with a DMP. 

DMP basics and how it differs from IVAs. 

When individuals face challenges meeting their contractual repayments, they negotiate a repayment plan with the creditor firm. This entails an agreement between the individual and their creditor to repay debt at a manageable rate. DMPs are commonly utilised for non-priority debts, including credit cards, loans, and various credit agreements such as mobile phone contracts. DMPs can combine several debts into one payment, lowering individual interest rates and putting them on a path to repay their debt in full. Unlike an individual voluntary arrangement (IVA), where a portion of borrowers’ debt may be written off, DMPs necessitate full repayment. In 2023, 300,000+ individuals contacted the debt charity Step Change for debt assistance, highlighting the large number of people on DMPs and the potential hurdles they may encounter in accessing affordable mortgages due to not meeting mainstream lender criteria. It’s important for you to know what solutions are available and how you can help this cohort of clients attain their dream homes, as DMP providers may only sometimes be listed on your client’s credit file, making them less readily recognisable. 

How can you tell if your client is on a DMP? 

 Is your client in a DMP? Here are some clear signs to look out for, which will help you determine whether your client is on a DMP or if they had been on one previously. You’ll first need to investigate your client’s bank statements as part of your fact-finding. Here, you will see when the plan was implemented and how long the individual has been paying back the creditor. If you spot a pattern of regular small payments made weekly or monthly to a company you don’t recognise, a quick internet search could help determine whether it’s a DMP provider. Understanding you client’s full credit history will help you discover the best tailored solution for their unique circumstance. This will in turn make the application process a lot quicker when reaching out to a lender.  

What mortgage lending solutions are available for DMPs? 

A popular question often posed to brokers by clients is: “Can I get a mortgage with a debt management plan?” The answer is yes. But not through the traditional lender route. If you discover that your client is on a DMP, you must establish how long the plan has been in place and whether your client has successfully maintained their regular payments. Borrowers who have successfully maintained payments on their debt plan showcase their drive to restore their finances, and here is how we help borrowers in these circumstances: 

• At Bluestone, DMPs can run alongside the mortgage. Just add the monthly payment as a credit commitment during the application process. 
• They don’t have to be satisfied on completion. 
• There is no minimum time the applicants must have been in a DMP. 
• There is a Scottish ‘equivalent’ called a DAS (Debt Arrangement Scheme). This need to be satisfied with the completion of the loan. (slightly more formal as they go through the Scottish courts) 
• We do use a standard default policy for DMP/DAS customers. 
• If someone is in a DMP/DAS and has no defaults registered in the last 3 years or the defaults are under £300, then they would be placed in the 85% LTV credit category with a DMP running alongside the mortgage. 

Case study – how Bluestone helped a customer with a DMP. 

At Bluestone, we want to widen the range of customers who can access a mortgage, and our manual underwriting approach allows us to do just that. Because we take time to understand the nature of your client’s personal and financial situation, we can be as flexible as possible. We acknowledge that life is not always smooth sailing, and circumstances such as redundancy, illness, or divorce can have long-term effects on one’s credit history. Nara Smith’s situation is a prime example of this: 

The Scenario 

Nara’s divorce left her in a difficult financial position with a substantial accumulation of debt as she had to pay off 2 properties at the same time. After 4 defaults on her credit profile, Nara entered a debt management plan to help her pay off this debt. 

The Outcome 

Despite these challenges, Nara purchased a new property after the courts ruled that the previous house had to be sold. As we don’t credit score our borrowers and allow DMPs to run alongside the mortgage, Nara was able to obtain her dream home and move on with her life. 

What could this mean for you as a broker? 

When household budgets are under strain, as has frequently been the case for many borrowers recently, something often gives – typically resulting in missed payments. This may not necessarily be the borrower’s fault. However, as a broker, accommodating these life events and still seeking the best lending solutions ensures that borrowers aren’t left out or excluded. At Bluestone Mortgages, we make our decisions based on your customer’s individual circumstances, so if they’ve failed a credit score because of this, we may offer our assistance. Here’s a compelling testimonial from one of our customers showcasing this: 

A customer 5* Trustpilot review:  “I have a debt management plan following a horrendous divorce and being off work for six months with bowel cancer and chemo treatment. I have never been in debt before, and the DMP company did not tell me just how much being on this plan would affect my credit score! I am now remarried, and my new husband and I and my boys are moving house to be nearer family and have a fresh start with a new family home. Obviously high street lenders wouldn’t touch us with a barge pole, but Bluestone have been amazing. Our new mortgage is slightly higher than a high street lender, but it is affordable and is only for 2 years. I am happy to be moving as I thought my credit score would be the sticking point, but Bluestone have found a way to make our dreams a reality. I would highly recommend them to anyone who is worried about being in debt or on a DMP.” 

As credit borrowing rises and the risk of defaults grows, brokers may observe a rise in borrowers entering the ‘specialist’ mortgage sector. Despite its label as ‘specialist,’ this segment caters to individuals facing real-life challenges, highlighting the crucial need to ensure they can access the financial support they require to purchase their dream homes. If you would like more information on DMPs, reach out to our sales team at sales@bluestonemortgages.co.uk, who will gladly guide you to other resources. You can also visit our products page to learn more.