Hi, OP -
Student Finance England will add one year to the term of the original loan with no questions asked. If DS was originally on the MEng programme, he can repeat (once), creating a 5 yr loan, with no problem. If he transferred from BEng to MEng he has used the automatic extension and would need to petition.
I think this sounds like a great opportunity, if the finances work. However DS needs to understand what went wrong and how to prevent it happening again. Experience of SEN personal tutees and Mitigating Circumstances Committees says that good intentions do not suffice.
Is DS fully engaged with all of the assistance his School and university will offer him? If not (and if he is ready to take up the offer of repeating) he needs to consult with a Student Support Officer or similar asap to line up all the help he can get.
If this is really the right time. The offer to repeat came at short notice. Is DS ready for this? No shame in asking if it can be deferred while he gets his head in the right place.
I understand the repeat mark is likely to be capped, formally. But for purposes of continuing into Y4, I would expect DS’ true ability to be the determining factor. You say even the capped mark would put him very close to a 2.1 so this is definitely something he should ask about.
Finally, yes - perfectly possible to find a decent MSc programme that will take a 2.2. If DS gets a 2.1 using the true repeat mark and if his referee can explain why the circs of the first attempt st Y3 are not likely to resurface, his chances will be even stronger. But he needs to be in a good place mentally for this to happen.
The OCD medication is a fine first step. But I think it is more like an umbrella in the rain than a port in a storm.
Very best wishes to DS