At the end of May, total consumer credit excluding student loans hit nearly £212bn, according to the Bank of England.
It is little surprise then that there were more county court judgments (CCJs) against consumers in England and Wales last year than any other year since current records began, according to figures from Registry Trust.
In 2017, 1.14 million judgments were registered against consumers in England and Wales, which equates to 19.49 consumer judgments per 1,000 people.
Set against this backdrop of increasing consumer indebtedness, a growing number of borrowers are facing up to their financial problems and working to repay their creditors with the help of a debt management plan (DMP).
More lenders getting involved
At the last count, there were approximately 400,000 people in commercial DMPs in the UK, according to a report by the FCA in 2016, and lenders are responding to this growing demand.
We have seen an increasing number of lenders release specialist products to help borrowers in a DMP, so if you are not familiar with this part of the market, it’s worth brushing up on the basics.
A DMP is an agreement between an individual and his or her creditors to pay off their debts.
It is typically used when borrowers can only afford to pay less than their contractual repayments each month and unlike an IVA, with a DMP, a borrower should ultimately repay the debts in full.
Borrowers can arrange DMPs themselves, but they will generally approach a debt management company that will arrange a plan with creditors, often for a fee.
The debt management company will work with the borrower to understand full details of their income, financial commitments and household expenses to work out a realistic monthly payment. The company will then attempt to arrange a reduced monthly payment with each of the creditors to be paid over an agreed time period.
Lenders accepting DMP borrowers take the view that successfully maintaining payments for a period of typically 12 months demonstrates a determination and ability to rehabilitate their finances and therefore deserves the opportunity to access mortgage funding.
With the growing number of options for borrowers in active DMPs lenders are now willing to lend up to 90% or even 95% loan to value (LTV) and rates are increasingly competitive.
So if you have clients who have struggled with debt, then chosen to tackle it with a DMP and are now looking for a mortgage, take a look at the options that are currently available in the specialist market. It’s a growing area of demand from consumers and lenders are responding to meet this demand.