Remortgage after a debt management plan

How lenders typically treat it

A general guide to how the market behaves, not a promise about any lender. Criteria change and every case is assessed individually. See the lender criteria database for named lenders.

Can you remortgage after a debt management plan?

Yes, and for many homeowners it is the natural next step. A debt management plan is an informal agreement, usually arranged through a free debt charity or a fee-charging firm, under which your creditors agree to reduced monthly payments until the debts are repaid. It is not a formal insolvency, and nothing stops you applying for a mortgage during or after it. Whether a lender says yes depends on what the plan left on your credit file.

The reason is simple: there is no DMP entry on a credit report. What lenders see are the individual accounts that went into the plan and how each creditor chose to record them. Some registered a default when you first fell behind. Others added an arrangement to pay marker, often shown as AP on the report, for every month the reduced payment was made. Some did both. Each entry has its own date and six year life, and lenders grade each in the usual way: how old, how large, whether settled, and what has happened since.

That has a practical consequence. Two people who completed similar plans on the same day can have very different files, and the one whose creditors recorded early defaults may find lenders easier to satisfy than the one whose creditors recorded four years of AP markers with no default at all. Understanding your own file is the starting point. Our comparison of consolidation and a DMP covers the decision from the other direction, for homeowners who have not yet chosen between the two.

What does a lender actually see on your credit file after a DMP?

Three kinds of entry, each with its own weight. A default is registered when a creditor decides the relationship has broken down, usually after three to six missed or reduced payments, and the heaviest of the three. It shows the date it was registered, the amount, and whether it has since been marked satisfied (paid in full) or partially satisfied (settled for less). Lenders grade defaults by age and size, and most want them satisfied before they will lend for consolidation.

An arrangement to pay marker is lighter. It records that the creditor agreed to reduced payments and that you made them. One account with AP markers that ended two years ago is a minor issue to most lenders; a dozen accounts with AP markers over five years tell a longer story of strain and are graded more cautiously. A third kind of entry, late payment markers, usually appears in the months before the plan began and fades in importance fastest.

Two features of the clock matter after a DMP. Each entry falls off six years from its own date, not six years from when the plan ended, so accounts that defaulted early in the plan clear early and AP markers that continued to the end clear last. And a default that was settled through the plan should show as satisfied with the settlement date; if it does not, or if a creditor recorded a default after the plan started when it should not have, ask for it to be corrected before any application. Experian, Equifax and TransUnion each offer a free statutory report.

Does it matter whether the DMP is completed or still running?

It matters a great deal. A completed plan, with every account settled and marked satisfied, is the position most lenders want to see. It shows the debts were repaid, even if slowly, and the question then becomes how long ago and how clean the file has been since.

An ongoing plan is harder, but not closed. A few adverse credit lenders will consider a consolidation remortgage while a DMP is running, on the specific condition that the new borrowing clears the plan in full on completion. In that case the plan provider supplies settlement figures for each creditor, the lender's solicitor pays them directly, and the accounts are marked satisfied at that point. The lender's logic is that it replaces a set of informal arrangements with one secured, affordable payment; from your side, the debts are repaid years sooner than the plan would have managed, at the price of securing them on your home. It is a real trade-off, worth taking free advice on first.

Two cautions apply. The plan provider will need to be told, and some creditors may agree to less than the full balance for early settlement, which the provider can explore. And while the affordability assessment will treat the DMP payment as ending, the lender will still look hard at why the plan was needed and whether the underlying cause has been fixed. If the honest answer is that it has not, a remortgage moves the problem rather than solving it, and StepChange, MoneyHelper or Citizens Advice will tell you so for free.

How long since the DMP ended, and what does a lender want to see?

Time since completion is the main grading factor, and three gates recur. Within 12 months of the last DMP payment, a small group of specialist lenders will consider you, typically at 70% to 75% loan to value and their higher rate tiers. From 12 to 36 months, most adverse credit lenders are open, commonly up to 75% to 80% loan to value, with the tier improving each year. Beyond 36 months, with defaults ageing and some already gone, mainstream lenders start to return and pricing moves towards standard rates.

Alongside the dates, lenders typically want to see:

• Every account from the plan marked settled or satisfied, with no unsatisfied defaults left on the file.
• Clean mortgage conduct throughout the plan and since. A DMP that protected the mortgage payment is viewed far better than one that did not.
• No new adverse entries since the plan ended, and ideally a little new credit managed well, which shows recovery.
• A clear reason for the borrowing now. If it is to consolidate debt that has built up again since the plan, expect close questioning.
• Enough equity to fit under the reduced consolidation cap, which is where our guide to how much equity you need helps.

If your fixed rate ends in a year and that coincides with a gate, waiting avoids an early repayment charge and reaches a better tier at the same time. A secured loan in the meantime is the usual bridge where consolidation cannot wait; our secured loans with defaults page explains what second charge lenders look for.

What would remortgaging after a DMP cost?

The rate tier for a recent DMP sits above mainstream remortgage rates, and because a remortgage replaces your whole mortgage, it applies to your existing balance too. The example below uses the fixed illustrative remortgage rate applied across this site and looks only at the £20,000 being consolidated. If you are clearing the balance left in an ongoing plan, the current payments line is your plan payment instead, and the comparison is about total cost and duration as much as the monthly figure. A lender pricing for recent defaults may quote a higher rate.

On the standard figures the monthly outgoing on those debts falls from £532 to £136, and the £20,000 costs £32,748 to repay over 20 years. At a post-DMP rate tier both figures rise, and a higher rate on the existing mortgage balance can outweigh the consolidation saving altogether, which is why an adviser compares the whole mortgage on both routes, fees and any early repayment charge included, before recommending anything. The borrowing is secured on your home, and your home may be repossessed if you do not keep up the repayments. After a DMP, that risk is taken with debts that were previously unsecured, and it deserves the same care the plan took.

What improves your chances

• Get your statutory credit reports from all three agencies and check every DMP account shows as settled or satisfied with the right dates.
• Ask creditors to correct any default registered after the plan began, or any settled account still showing a balance.
• Keep the mortgage and every other payment on time from the plan's last month onwards; post-DMP conduct is weighed heavily.
• Use a small amount of credit responsibly after the plan ends, since a file with no recent activity gives lenders nothing to grade.
• Time the application for a gate, 12 or 36 months since completion, that coincides with the end of your current mortgage deal.
• Keep the plan provider's completion letter and final statements, and be upfront with the broker about the plan and its cause.

Alternatives worth considering

If the defaults behind the plan are too recent for a remortgage, a secured loan from a specialist second charge lender is the usual bridge; see secured loans with defaults. If the DMP was one of several problems on the file, our remortgage with bad credit page takes the wider view. If you have not yet chosen between a plan and consolidation, our comparison of consolidation and a DMP weighs them. And if the debts have returned since the plan ended, free advice from StepChange, MoneyHelper or Citizens Advice comes before any new borrowing.