Can I Get a Mortgage on a Debt Arrangement Scheme (DAS)
The Debt Arrangement Scheme (DAS) is a Scottish debt solution that allows you to lower your monthly payments to pay off your debts. A Debt Payment Programme (DPP) is built using your real income and expenditure to determine how much you can afford to distribute amongst your creditors. For many people in debt, protecting or seeking a mortgage is a key concern, so here we outline the role the DAS can play with your mortgage.
Your Existing Mortgage
If you already have a mortgage, you might be concerned about your equity. Equity is the value of your asset, in this case your home, if you were to sell it. If you aren’t sure about the equity in your property, work it out using this calculation:
Equity = Current value of property – (remaining mortgage + sales costs and tax)
If you have positive equity, you would make money by selling your home and if you have negative equity, you would make a loss. The DAS does not require you to release any equity or sell any assets, and this a major advantage if you have a lot of equity to protect. You must continue to pay your mortgage as it is not included as a debt in your DPP, but it is included as an essential expenditure.
If you have missed some of your mortgage payments, you have mortgage arrears. These are a different form of debt to your normal mortgage payments and puts you at risk from repossession. This makes them a priority debt. Unlike your normal mortgage payments, your mortgage arrears could be included as a debt in your DPP.
Many mortgage providers do not allow this, however, so you should seek advice from your money adviser if you are considering this. If your arrears are not included as a debt, they will be included in your DPP as essential expenditure, but this could affect your potential surplus income.
Entering into a Mortgage during a DAS
The most complicated aspect of mortgages and the DAS is entering into a mortgage after your DPP has begun. The most crucial issue to consider is your credit score, which lenders use to determine your credit worthiness. People with a DPP are likely to have poor credit score because:
- Having already had problem debt, they are likely to have missed payments or had other concerns which have already negatively affected your credit score.
- They are entered into the DAS Register which is reflected on your credit report, and therefore lowers your credit score
Having a low credit score does not stop you from being able to take out a mortgage, but it can encourage providers to reject you or give you much higher interest rates. If you want to take out a mortgage before you have finished your DPP, you might find high street lenders unwilling to lend to you and will have to seek specialists with higher fees and interest. You might also face a large deposit and be expected to have no defaults or CCJs on your credit report.
As the DAS does not require you to sell any assets, your DPP could work with a mortgage if you have a large amount of positive equity that you are willing to release in order to put down a particularly significant deposit.
Entering into a Mortgage after a DAS
If you can, it is a good idea to wait until your DAS has ended as you can then work to rebuild your credit score. This will take a minimum of 6 years, even if your DAS is shorter than that, as, like most formal debt solutions, your DAS remains on your credit file for that period of time.
This does not mean you can’t work to rebuild your credit score during your DPP. While it might not be advisable to attempt to take out further credit, there are other techniques that can start you on your way:
- Set up a direct debit for your bills to ensure they are paid on time. Your gas, electricity, internet and television bills are all opportunities to demonstrate that you are financially responsible.
- Register to vote. This is a known ‘easy’ technique to appearing responsible and, therefore, creditworthy.
- Try to avoid moving home often. Lenders prefer to lend to people who appear settled and secure.
- Check your credit report for mistakes and fraud, then report it. You shouldn’t check your credit file too often as that can make you look financially insecure, but you should know what is on it and if it is correct.
- Unlink your account from your spouse or family members if they have poor credit.
Once you have completed your DPP, you will be in a much more secure financial position and you can work on your credit score using credit cards and by taking out healthy, affordable loans. Remember to pay these off immediately, and to never spend what you cannot afford.