"Clients can also struggle to know the difference between an informal arrangement to pay, which is usually made by the client with one creditor at a time, and a DMP"
Most credit issues, such as missed payments, defaults or CCJs can be clearly identified by reviewing the client’s credit file, but how do you know whether or not your client is currently in a Debt Management Plan?
DMP providers don’t always register on your client’s credit file so it’s not something that you can readily recognise. Clients can also struggle to know the difference between an informal arrangement to pay, which is usually made by the client with one creditor at a time, and a DMP, where a specialist company negotiates reduced payments with a number of the client’s creditors on their behalf.
Even where a DMP has not been registered on a credit file, it is possible to recognise patterns that would suggest there is one in place. For example, if a number of your client’s credit agreements move into default, or show there is an arrangement in place, all at the same time, this could indicate that a debt management company has stepped in to work with the creditors.
A more straightforward approach, however, would be to examine the client’s bank statements as part of your fact find. Look for any regular payments made by Direct Debit or standing order to a recognised DMP provider. These payments could be made weekly or monthly and would usually be for a relatively small sum in relation to the client’s outstanding debt. If you spot a pattern of regular payments to an organisation that you do not recognise, a quick internet search should quickly identify whether it is a DMP provider.
If you do find out that your client is in a DMP, the next step is to establish how long the plan has been in place and whether your client has successfully maintained their regular payments. There are lenders that will take the view that a borrower who has successfully maintained payments on a plan for a year or more has demonstrated a determination to rehabilitate their finances, and there are competitive options available for borrowers in these circumstances.
A DMP can be a useful tool to help borrowers manage debt, but it can also be hard to identify. By taking the time to look through your client’s bank statement, you can learn to recognise when a plan is in place and this will help you to choose the most appropriate mortgage for their needs.
