Q I am 46 and live in a small two-bedroom house with my two children but I need something bigger. I owe about £96,000 on the mortgage but also have another secured loan of £38,000 (which is what it would cost to repay it so includes early redemption fees and so on). The house is valued at about £165,000, so I do have some equity in it. However, my real problem is that I’m also on a debt management plan of about £13,000, which has been going for less than a year. If I sold my house and paid off everything, I would have £18,000 to put towards a bigger house. But my question is: would I be able to get the bigger mortgage that I would need?
Is there any hope? I was also wondering whether I should sell up and rent for a while before trying to get another mortgage. Or has my credit history scuppered any chances of buying a bigger place?
A Yes there is a very modest amount of hope but it will involve a bit of a wait and the use of a specialist mortgage broker. According to Pete Mugleston, of onlinemortgageadvisor.co.uk, “You can get a mortgage with a debt management plan (DMP) but it very much depends on your personal circumstances. One of the most important things that lenders will look at is whether or not the DMP is active and, if not, how long ago it was satisfied.
“If you are currently managing debts as part of a DMP, then your options are going to be a lot more limited… as the majority of lenders, especially high street banks, won’t consider an unsatisfied DMP.”
Those lenders that will consider mortgage applications from people with active DMPs will usually require your active DMP to have been in place for at least 12 months and to have been managed responsibly.
But even if you wait until your DMP has been in place and well-managed for 12 months, the likelihood of you getting a bigger mortgage are slim. That’s because the most you might be able to borrow is 75% of the value (not the same as the purchase price) of a new property. With a cash deposit of £18,000, that would mean a total property value of £72,000 with a maximum mortgage of £54,000. The maximum mortgage would be even smaller if part of the £18,000 needs to be used to pay legal and other fees.