Getting a mortgage after Debt Management

If you are keen to buy a new home after you have resolved a debt problem with a debt management solution saving for a good deposit is just as important as a good credit rating.

According to the Daily Mail borrowers with deposits of five or ten per cent of a property’s value can find themselves paying more than double the mortgage interest of those with 30 to 40 per cent equity in the property.

A homebuyer with a 40 per cent deposit who needs to borrow £150,000 will pay about £300 a month less than a customer borrowing the same sum but pushing their ‘loan to value’ to the maximum 95 per cent.

For this reason if you have just finished paying your debts using a debt management solution and are looking to get a mortgage the state of your credit rating is important. However your ability to stump up a significant deposit will also dramatically improve your chances of getting a mortgage.

Government Funding for Lending scheme

The recent announcement of the government’s new funding for lending scheme should mean that banks can gain access to cheaper funds which in turn they can more readily lend out. But they are likely to be prepared to do this only to their customers who can offer large deposits.

A 95 per cent mortgage requires about one fifth more capital placed into reserves than an 80 per cent loan of the same size. Put another way, a firm can make six loans to those with a 20 per cent deposit for every five loans to those with a five per cent deposit.

The need for good deposit is therefore a key criteria when considering whether to apply for a mortgage. But according to the latest national housing survey published by the government only one in four would-be buyers who considered applying for a mortgage actually do so. The rest give up because they do not think they had a big enough deposit.

Choosing the right debt solution for getting a mortgage

James Falla, senior debt expert at Beat My Debt said that many people are extremely worried about how their credit rating will be damaged if they resolve their debt problem with a debt management solution.

“Thinking about the future and about the prospects of being able to get onto the housing ladder are often key criteria used by those who are trying to chose a debt solution. Many people choose a Debt Management Plan (DMP) because they wrongly believe that it will cause the least damage to their credit rating and give them the maximum opportunity to buy a house in the future” Falla said.

However it is becoming increasingly clear that being able to put down a good deposit is just as important as the state of your credit rating when trying to buy a house.

The sooner you are debt free the sooner you will be able to start saving for the all important deposit and as such choosing a debt solution which will allow you to get out of debt in the fastest possible time should be a key criteria for someone looking to buy a house in the future.

“Once they are debt free it may take a few years to save the necessary deposit by which time their credit rating will have improved dramatically” Falla advised