Making revised repayment arrangements with creditors as part of a debt management plan helps many consumers get out of debt. A third-party debt management company manages the plan, accepting the single debt payment issued by the debtor each month and dividing the money amongst the creditors. The plan represents a promise to fully repay debts so it can last for several years. When their debt management plans conclude, some people want to apply for a mortgage.
You can still obtain a mortgage after completing a debt management plan or an individual voluntary arrangement. Most mortgage providers usually require a deposit and your unsecured credit to be cleared or paid off. Mortgage underwriters will assess your affordability and we can refer you to a CeMap mortgage advisor. Contact us today for more information
A debt management plan represents a breach of the initial repayment agreement with a creditor so it usually has a detrimental effect on the credit score
A mortgage is difficult for someone with good credit to obtain and approval can be even more difficult for someone with a poor credit score. After completing a debt management plan, consumers should rebuild their credit rating by using credit responsibly. They should understand that some forms of credit will not be helpful in this endeavour.
This week, GE Money seems to have announced that it will not approve a mortgage application from someone who has used a payday loan within the past quarter or used two or more payday loans in the last year. Even a payday loan that was fully repaid in the initial term seems to be an issue. The fact that this lender is taking such a hard view of payday loans is revealing. GE Money is one lender that typically considers individuals who have repaired their credit following the use of debt management plans.
It appears that GE Money has recognised that using payday loans is an indicator of risk and a suggestion that a person is experiencing financial difficulty or issues with financial control. These factors lead to the conclusion that a consumer may be less likely to repay a mortgage under the stated terms. Mortgage lenders are already highly focused on risk and payday loans seem to be making them even more concerned.
GE Money may not be the only lender taking this view. Lenders share information, which now includes details about payday loans. These details were incorporated at the request of lenders who wanted a comprehensive picture of applicant financial status. The impact on former debt management plan holders can be very frustrating, considering that the individuals worked so hard to repay their debts.
Payday lenders do not seem worried about this development. One representative for the industry stated that taking out a payday loan indicated nothing other than that money was needed for a short time. This is a vastly different view than that taken by mortgage lenders. If consumers are in need of mortgages, they should ask a prospective lender how it perceives the situation.
Debt management experts recommend that consumers in need of a mortgage refrain from using payday loans after completing a debt management plan. They say that payday loans are red flags to lenders that financial troubles still exist. Consumers should use other forms of credit and repay the balances on time and per the creditor agreements.