A Debt Management Plan (also known as a DMP) is an arrangement which allows an individual to deal with their debts in an easier, more manageable way. It could be that they have accumulated several lines of credit that, for whatever reason, have now become beyond their means to maintain – the DMP enables the debts to be frozen while you pay them off at a more affordable rate by reducing the monthly payments.
However, this does have an adverse effect on your credit file, as you are essentially failing to meet the agreed contractual obligations on the loans with every monthly repayment that is less than it should be, and you may find more ‘missed payment’ entries showing up on your credit report.
It could also be that some commitments within the DMP have defaulted, compounding the issue. DMPs and defaults are very often linked because the situation leading to the need for a DMP in the first place usually means someone has experienced financial difficulties and probably tried to struggle through for a while before entering a DMP to make things more manageable.
So, being in an active DMP when you apply for a mortgage could pose a significant problem, but it does not mean you can’t get a home loan for a Buy-to-Let property. The range of lenders and products available to you will be much reduced, you will need to apply to a specialist bad credit lender and will be expected to pay a higher deposit than standard. Given that the standard deposit for a Buy-to-Let is around 15-25%, and you are likely to be using your disposable income to pay off the DMP, the real issue could be your ability to save up a large enough deposit.
If the DMP is settled and historic, but still less than six years in the past, some lenders may raise an issue, but most will be happy to lend to you if you can show a clean credit record in the time since the DMP was served. The upside of a DMP is that it shows you were willing to take responsibility for your debts and make plans to pay them off as much as possible.