Can you lose your house on a DMP?
In this article, we'll look at:
- Will a debt management plan affect my mortgage?
- Will my house be put at risk if I start a debt management plan?
- Do I have to sell my house or release equity if I'm on a DMP?
- Will my mortgage provider find out if I get a DMP?
- Could a DMP prevent a creditor from pursuing a charging order?
- Can a DMP protect my home from repossession?
- Can I get a new mortgage if I'm on a debt management plan?
- Will having a DMP affect my ability to sell my house?
- How can I avoid losing my home while on a DMP?
- Learn more about debt management plans with DFH
Debt Management Plans (DMPs) are designed to help individuals manage multiple unsecured debts by consolidating them into a simple monthly payment. You send this payment to the debt management company, which then divides it between each of your creditors in order of priority. Your DMP provider may even be able to liaise with your creditors to negotiate a lower interest rate.
For homeowners, the potential impact of a debt management plan on their property is a significant concern. Many people wonder how taking out a DMP could affect their mortgage, or whether it may put their home at risk. This article will explore the relationship between DMPs and homeownership, addressing key questions and concerns.
Will a debt management plan affect my mortgage?
If you have a mortgage, it won’t be directly affected by a debt management plan, nor will it prevent you from starting one. A DMP focuses on consolidating unsecured debts, such as personal loans, and doesn’t include secure debt (e.g. debt against your property). You’ll continue making payments towards your mortgage as usual.
Your plan provider should ensure you can afford to maintain your monthly mortgage payments alongside your DMP payment.
Will my house be put at risk if I start a debt management plan?
Being on a DMP can’t directly put your home at risk. Because it is an informal arrangement and is not backed by collateral, you won’t lose your home as a direct result of not paying you DMP payments.
However, if you have mortgage arrears, or miss payments towards your mortgage or secured loan, you could still lose your house. It’s crucial to assess your financial situation carefully before taking out a DMP and to ensure you can afford to maintain your mortgage/secured loan payments.
When calculating your monthly plan payment your plan provider will take into account your mortgage and secured loan payments, and if you have any arrears they will advise you accordingly on how you can get support with that.
Do I have to sell my house or release equity if I'm on a DMP?
You won’t be forced to sell or release equity from your house when taking out a debt management plan. However, if you’re struggling with significant debt, some creditors might suggest releasing equity to repay it. This is not a direct consequence of the DMP but rather an alternative option for dealing with debts that would help you avoid defaulting on your loans.
Be aware that while releasing equity can provide a lump sum to clear debts, it also means taking on additional borrowing, which could put your home at risk in the long term.
Will my mortgage provider find out if I get a DMP?
Your DMP provider will not usually tell your mortgage lender about your debt management plan. That being said, defaults will be recorded on your credit file, and some of your creditors may place a note on your file stating that you have a DMP. So, if your mortgage provider decided to perform a credit check – for example, if you ask for a further advance, or want to remortgage – there is a chance they could find out.
Could a DMP prevent a creditor from pursuing a charging order?
If you default on a debt, your creditor could seek to obtain a County Court Judgement (CCJ) against you, and secure the debt against your property using a charging order.
Because DMPs are not legally binding, creditors are still free to pursue any legal action. A DMP could, however, reduce the likelihood that a creditor will apply for a charging order. Though creditors are not obligated to accept your DMP, if you’re making consistent payments toward your debt, they may decide not to take court action.
Can a DMP protect my home from repossession?
As a debt management plan is an informal agreement that deals with unsecured debts, it cannot protect your property from being repossessed. If you’re unable to make mortgage payments (secured loan repayments) while you’re on a DMP, you could still lose your home.
However, a DMP may help to reduce the amount of debt you pay each month to your other creditors (e.g. loan providers and credit card companies). If you’re making reduced payments, this could help you to keep up with your mortgage, potentially reducing the risk of losing your home.
Can I get a new mortgage if I'm on a debt management plan?
It is not impossible to get a mortgage before your DMP is finished, but you may find it more difficult. Defaulted debts and the potential note of a DMP on your credit report may cause lenders to consider you a financial risk. This might lead to a higher rate of interest or a declined application.
Will having a DMP affect my ability to sell my house?
There’s nothing stopping you from selling your house if you are on a debt management plan. However, it may be harder to get a mortgage on a new property. Additionally, if you gain equity from the sale, your creditors might expect you to use this to settle your debt.
If you are considering selling your property, you should discuss this with your DMP company. They can offer guidance on how best to navigate the situation.
How can I avoid losing my home while on a DMP?
Protecting your home is a priority. There are many steps you can take to help reduce the chances of losing your house while on a debt management plan:
- Prioritise your mortgage payments and other priority debts (speak to your DMP provider for advice).
- Communicate with your mortgage lender if you anticipate financial difficulties.
- Regularly review your DMP to ensure it remains affordable.
- Seek professional debt advice before making financial decisions.
- Try to avoid taking on additional debts, such as payday loans or credit card debt.
Learn more about debt management plans with DFH
Understanding the intricacies of DMPs is crucial, especially for homeowners. While a debt management plan cannot completely prevent any risk of losing your home, it could help you to manage your finances so that you can keep up with your mortgage repayments. Always seek advice and assess your financial situation thoroughly before making a decision.
If you’re considering a debt management plan or would like to learn more, DFH Financial Solutions is here to help. With our team of trained professionals, we pride ourselves on offering expert guidance and tailored solutions to help individuals struggling with debt.Get Debt Help