In this comprehensive guide, we explore the realities of obtaining a mortgage with an active or completed IVA. From explaining the intricacies of an IVA and its impact on your credit file to discussing the lending criteria of various mortgage lenders, we aim to provide a clear, thorough, and practical understanding of this complex issue. “Can You Get a Mortgage with an IVA?” This article answers the question.
We also introduce you to our services offered by Become Debt Free, a licensed insolvency practitioner based in Leeds. With a vast wealth of experience in handling IVAs and providing personalised debt solutions. Whether you need in-depth advice about your IVA or assistance with mortgage applications under such circumstances, our dedicated team is here to guide you every step of the way. Call us on 0800 169 1536 or leave an enquiry on our website to start your journey towards financial freedom.
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What is an IVA?
An Individual Voluntary Arrangement, commonly referred to as an IVA, is a formal and legally binding agreement between an individual and their creditors, typically used as a solution for managing unmanageable debt in the UK. It’s overseen by a licensed insolvency practitioner, who serves as an intermediary between the debtor and the creditors.
The core purpose of an IVA is to offer a feasible repayment plan to the creditors based on the debtor’s disposable income and financial situation. This agreement usually spans five to six years, during which a fixed monthly payment is made towards the total debt. Upon completion of this payment plan, the remaining debt is typically written off.
An IVA is publicly recorded on the Insolvency Register and has a significant impact on the individual’s credit file, often leaving a mark for six years from the date of commencement. However, it’s seen as a preferable alternative to bankruptcy due to its more flexible terms and lesser impact on the debtor’s professional life.
This debt solution offers protection from legal action by creditors and prevents them from adding additional interest or charges to the outstanding debt. Despite its implications on credit, many people find an IVA to be the best way to take control of their debt and start on a path towards better financial health.
Can You Get a Mortgage with an IVA?
Securing a mortgage while under an IVA can be a challenging prospect, but it’s not entirely impossible. The presence of an IVA on your credit file often raises concerns for mortgage lenders, as it represents a history of debt struggles. However, that doesn’t automatically rule out the possibility of securing a mortgage. The decision ultimately depends on the individual’s circumstances, the lending criteria of the mortgage lender, and the status of the IVA.
When a person enters into an IVA, it leaves a mark on their credit file for six years, starting from the date it was set up. This means any mortgage lender will see the IVA during this period when they perform a credit check as part of their lending criteria. Consequently, this can negatively impact your credit score and may make mainstream high street lenders reluctant to offer a mortgage.
However, it’s important to understand that while an IVA and other credit issues do affect your credit history and score, they do not necessarily spell the end of your homeownership dreams. Specialist mortgage lenders exist who work with individuals with adverse credit histories, including those who have had an IVA. Their products, often termed “bad credit mortgages” or “IVA mortgages“, are designed specifically for this group.
Nonetheless, getting a mortgage with an active IVA or even post-IVA requires careful planning and advice. Certain considerations like a larger required deposit, higher interest rates, and more stringent affordability assessments are common with these specialist lenders. Your past financial difficulties, including an IVA, don’t definitively bar you from the property ladder, but they do require you to take a somewhat different route to reach it.
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How Does an IVA Affect Your Mortgage Application?
An Individual Voluntary Arrangement (IVA) has a significant impact on your mortgage application. It’s essential to understand how this works to navigate the process effectively. The impact of an IVA stretches beyond the period of its active status, often affecting your financial circumstances for several years thereafter.
IVA and Your Credit Report
When you enter into an IVA, it is recorded on your credit report. Credit reference agencies in the UK, such as Experian, Equifax, and TransUnion, compile these reports, which serve as detailed records of your financial history. This report includes all your credit agreements, payment history, and any adverse credit events, including IVAs.
An IVA stays on your credit report for six years from the date it starts. Even if you complete your IVA before the end of this period, the record remains for the full six years. During this time, any lender conducting a credit check will see your IVA. This can impact your credit score and may influence their decision on whether to lend to you.
Impact on Your Credit Score
Your credit score is a numeric representation of your creditworthiness, and it’s influenced by the information in your credit report. Having an IVA can drastically reduce your credit score, signifying to lenders that you have struggled with managing your debts in the past.
Low credit scores can make securing credit more difficult, as lenders often view them as indicative of a higher risk. Consequently, if you’re applying for a mortgage with an IVA on your credit file, lenders may be more reluctant to offer you a loan.
Mortgage Lenders and IVAs
Mortgage lenders use your credit report and score as one part of their lending criteria. They do this to assess how likely you are to keep up with your monthly payments and repay the loan in full. If you have a low score and an IVA on your record, you may find it harder to get a mortgage offer from traditional high street banks.
However, all hope is not lost. Some specialist mortgage lenders operate in the market, offering products designed for people with poor credit histories, including those with an IVA. Although the rates offered by these lenders may be higher, they provide a potential route to home ownership despite past credit problems.
Remember, each lender has different lending criteria and approaches to dealing with applicants who have an IVA, so it’s beneficial to do some research or consult a mortgage advisor or broker before applying.
Lending Criteria for IVA Holders
When you’re trying to obtain a mortgage with an IVA, you’ll likely encounter some unique lending criteria. Understanding these criteria can help you prepare and increase your chances of getting approved for a mortgage. Here’s what you need to know:
Credit Score
As previously mentioned, an IVA significantly affects your credit score. Many lenders, particularly high street banks, will consider this low credit score a risk. As such, they may be hesitant to approve your application.
Deposit
Due to the increased perceived risk, lenders will often require a larger deposit from applicants with an IVA. In most cases, you may need to provide at least a 25% deposit. However, this can vary depending on the lender and your financial circumstances.
Affordability
Affordability is another essential factor for lenders. They will assess your disposable income – the income you have left after your necessary expenses and IVA payments. If your disposable income is sufficient to cover the mortgage repayments, the lender may be more likely to consider your application.
Repayment History
If you have an IVA, lenders will want to see that you’ve been making your IVA payments on time. A good payment history during your IVA can demonstrate that you’re capable of managing your finances, despite past issues.
Completion of IVA
Some lenders will not consider an application from someone with an active IVA. They may only consider your application if you’ve completed your IVA and can provide a completion certificate. Others might require a specific period to have passed since the completion of your IVA.
Specialist Lenders
While the criteria mentioned above generally apply to most lenders, there are specialist lenders in the UK market that cater to those with adverse credit histories. These specialist mortgage lenders are more accustomed to dealing with applicants who have an IVA on their credit record. They understand the issues and challenges involved and, as such, may have more flexible lending criteria.
It’s important to note that the interest rates offered by these lenders may be higher than those provided by high street lenders. This is due to the perceived risk associated with lending to individuals who have had past credit issues.
Getting a mortgage with an IVA may seem daunting, but with careful planning, it can be achievable. Consider getting advice from a mortgage broker or advisor who has experience with IVAs and adverse credit mortgages. They can guide you through the process, help you understand the criteria of different lenders, and potentially increase your chances of getting a mortgage.
Getting a Mortgage After an IVA
Getting a mortgage after an IVA can be a complex process, but with careful planning and preparation, it’s an achievable goal. The key is to demonstrate to potential lenders that you’re no longer a high-risk borrower, which will involve restoring your credit score, showing responsible financial management, and meeting specific lending criteria. Here’s a step-by-step guide on how you can prepare for your mortgage application post-IVA:
Completion of Your IVA
First and foremost, it’s crucial to complete your IVA successfully. Your insolvency practitioner will provide you with a completion certificate at the end of your IVA. Some lenders won’t consider your mortgage application unless you can provide this certificate. It’s also worth noting that your details will be removed from the Insolvency Register usually three months after the completion of your IVA.
Rebuilding Your Credit
After your IVA is completed, the next step is to focus on rebuilding your credit. It takes time, but it’s essential for improving your chances of getting a mortgage. Ensure you’re managing your finances responsibly; make all your payments on time, avoid accruing any further debt, and start to build a clean credit history. It’s also a good idea to check your credit report regularly to ensure all the information is accurate and up-to-date.
Saving a Deposit
Given the high perceived risk associated with IVA holders, most lenders will require a significant deposit. The larger the deposit you can save, the lower the loan-to-value ratio (LTV) will be. This could help to increase your chances of approval and potentially secure a more favourable interest rate.
Affordability Assessment
Lenders will carry out an affordability assessment to ensure you can afford the mortgage repayments. They will consider your income, outgoings, and any remaining debt. Showing a regular income, stable employment, and disposable income that comfortably covers your mortgage repayments will be beneficial in this assessment.
Choosing the Right Lender
Approaching the right lender is crucial when seeking a mortgage post-IVA. Some high street lenders may not lend to you if you’ve had an IVA, whereas some specialist lenders are more likely to consider your application, as they’re accustomed to dealing with adverse credit situations. You may find it helpful to work with a mortgage broker who can advise on the best lenders for your specific circumstances.
Mortgage Application
Once you’ve prepared thoroughly and selected the right lender, it’s time to submit your mortgage application. Be honest about your financial past, including your IVA. Lenders will appreciate transparency, and omitting such crucial details could lead to your application being declined.
Remember, each lender has different criteria, and a rejection from one doesn’t mean you won’t be accepted by another. It might take time and persistence, but many people successfully secure a mortgage after an IVA.
At Become Debt Free, we understand the challenges of navigating the mortgage process after an IVA. Our team of licensed insolvency practitioners is here to offer you advice and support as you take steps towards a new financial start. Contact us at 0800 169 1536 or leave an enquiry on our website for more information.
How Can Become Debt Free Help You?
Navigating the financial world with an IVA on your record can be a challenging journey, especially when you’re looking to secure a mortgage. Here at Become Debt Free, we’re dedicated to helping you face these challenges and support you in overcoming the financial hurdles that may stand in your way.
Expert Advice and Guidance
Our team of licensed insolvency practitioners is well-versed in all matters concerning IVAs and the impact they can have on securing a mortgage. We can offer personalised advice based on your individual financial circumstances, helping you understand the lending criteria of various mortgage lenders and guiding you through the application process. We’ll also provide valuable insight into how you can improve your credit record and increase your chances of mortgage approval.
Debt Solutions Tailored to Your Needs
Every financial situation is unique, which is why we take the time to understand your individual circumstances before suggesting any debt solutions. If you’re still in the process of deciding whether an IVA is right for you, or if you’re looking for ways to handle your financial obligations post-IVA, our team can help you find the most suitable debt solution.
Support in Rebuilding Your Credit
Rebuilding your credit after an IVA is a critical step in regaining financial stability and improving your chances of getting a mortgage. We can provide practical tips and strategies to help you manage your finances responsibly, improve your credit score, and build a clean credit history.
Frequently Asked Questions
Below we have compiled a list of frequently asked questions that we encounter from people looking to secure a mortgage with an IVA.
Can I apply for a mortgage while still in an active IVA?
While it’s not impossible, it can be very challenging to get approved for a mortgage while you’re still in an active IVA. Many lenders will see this as a high-risk situation due to your past financial difficulties. Some specialist mortgage lenders may consider your application, but this often comes with higher interest rates and a requirement for a larger deposit.
How long after my IVA can I apply for a mortgage?
The completion of your IVA will be marked by a Completion Certificate. After receiving this certificate, your details will be removed from the Insolvency Register, but the IVA will still appear on your credit file for six years from the date it was set up. However, many lenders, especially specialist lenders, will consider your application two years after the completion of your IVA, providing you’ve made efforts to improve your credit.
Will my IVA affect the interest rates on my mortgage?
Yes, it’s likely that your IVA will impact the interest rates on your mortgage. Because of the increased risk perceived by lenders, they may offer you a higher interest rate to offset this risk. However, as you continue to demonstrate good financial behaviour and improve your credit score, you may be able to refinance your mortgage in the future for a better rate.
How can I improve my chances of getting a mortgage after an IVA?
Improving your credit score is crucial. This involves making all your repayments on time, reducing your outstanding debts, and avoiding taking on additional credit. Having a steady income, a stable employment history, and a sizeable deposit can also enhance your chances of approval. Engaging the services of a mortgage broker or advisor who has experience with bad credit mortgages can be beneficial as well.
Remember, everyone’s situation is unique, and it’s essential to seek advice tailored to your circumstances. If you have any other questions or need further information, don’t hesitate to contact us on 0800 169 1536 or through our website.
Conclusion
Navigating the mortgage market with an IVA can seem like a daunting prospect. However, it’s essential to understand that it is indeed possible, although it may present some unique challenges. Remember that an IVA does impact your credit record, which can, in turn, influence your mortgage application and the lending criteria you’ll need to meet.
By carefully managing your financial circumstances, improving your credit score post-IVA, and working with the right mortgage advisor, you can enhance your chances of success. Specialist lenders often provide more flexibility and understanding of adverse credit situations like IVAs. Patience and persistence can pay off in the long run.
Here at Become Debt Free, we understand the complexities involved when dealing with an IVA and seeking a mortgage. We have a team of experienced professionals who can guide you through the process and offer the help that’s best suited to your situation. Our goal is to provide you with the tools and advice needed to climb the property ladder, regardless of past credit problems.
Whether you’re currently in an IVA or have completed one and are aiming to secure a mortgage, please don’t hesitate to reach out to us for advice and assistance. You can contact us at 0800 169 1536 or leave an enquiry on our website. Start your journey towards becoming debt free and securing your new home today.
References
The primary sources for this article are listed below.
Credit Scores, Reports & History | Equifax UK
Experian | Credit Scores, Reports & Credit Comparison
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