If you’re considering an Individual Voluntary Arrangement (IVA) to help manage your debt, you may be wondering how it could impact your chances of being approved for a mortgage in the UK. An IVA is a legally binding agreement between you and your creditors to repay your debts over a set period of time.
While it can provide a lifeline for those struggling with debt, it’s important to understand how an IVA can affect your mortgage application.
What is an ‘IVA mortgage’?
An IVA mortgage is not a specific type of mortgage, but rather a term used to describe the process of applying for a mortgage while you have an Individual Voluntary Arrangement (IVA) live on your credit report.
An IVA is a formal debt solution that allows you to make affordable repayments to your creditors over a set period of time.
It can remain on your credit report for up to six years, which can make it more difficult to obtain a mortgage. In some cases, lenders may require a larger deposit or charge higher interest rates to offset the perceived risk of lending to someone with an IVA.
Can I get a mortgage with an IVA?
It is possible to get a mortgage with an IVA, but it can be more difficult. Having an IVA on your credit report can make it harder to be approved for a mortgage, as it signals to lenders that you have struggled with debt in the past.
However, every lender has different lending criteria, and some may be more willing to work with borrowers who have an IVA.
It is important to speak to your Insolvency Practitioner before applying for a mortgage, as they can provide guidance on the impact an IVA may have on your credit score and how best to approach lenders.
In what ways does an IVA affect my mortgage application?
Credit restrictions
One of the most significant ways an IVA affects your mortgage application is by restricting your access to credit. An IVA is recorded on your credit report – or credit history – for up to six years, which can make it harder to be approved for credit, including a mortgage.
Mortgage lenders
Another impact of having an IVA on your credit record when applying for a mortgage is that mainstream lenders may not consider your application.
A high street mortgage lender may be more reluctant to lend to borrowers with an IVA, as they may view them as higher risk.
Mortgage payments
In addition, having an IVA on your credit report may affect your ability to make mortgage payments. When considering a mortgage application, lenders will assess your income and expenditure to determine whether you can afford the monthly mortgage repayments.
If you have an IVA, this may impact your disposable income, which can affect your ability to meet the lender’s affordability criteria.
Interest rate and charges
Another way an IVA can impact your mortgage application is through interest rates and charges.
Some lenders may charge higher interest rates or require a larger deposit to offset the perceived risk of lending to someone with an IVA. This can make it more expensive to obtain a mortgage, which may affect your ability to afford the monthly payments.
Can I get a mortgage after an IVA?
Yes, it is possible to get a mortgage after an IVA. Once your IVA has been completed and removed from your credit report, you may find it easier to obtain a mortgage.
The IVA will remain on your credit report for up to six years, which can make it more difficult to be approved for credit, including a mortgage. However, once this time period has passed, the impact of the IVA on your credit score will lessen, and you may be able to obtain a mortgage with more favourable terms and interest rates.
It’s important to note that every lender has different lending criteria, and obtaining a mortgage after an IVA may still be challenging. It’s recommended to work with an experienced mortgage broker or financial advisor who can provide guidance on the best approach to take and help you find suitable mortgage products.
Should I consider using specialist lenders?
If you have an IVA or poor credit, it may be worth considering using specialist lenders when applying for a mortgage.
Specialist lenders often have more flexible lending criteria and may be more willing to work with borrowers who have experienced financial difficulties in the past. They may also offer specialist mortgage products that are designed for borrowers with IVAs or poor credit.
While using a specialist lender can increase your chances of being approved for a mortgage, it’s important to be aware of the potential risks associated with using a specialist mortgage broker. Some specialist brokers may charge higher fees or interest rates, and there may be less regulation and protection compared to mainstream mortgage brokers.
Therefore, when considering specialist mortgage lenders or IVA mortgage lenders, it’s important to do your research and choose a reputable company with experience in helping borrowers in similar situations to yours. You may also wish to seek advice from an independent financial advisor before making any decisions.
Will I be able to remortgage after my IVA ends?
If you are worried that you will not be able to remortgage towards the end of your IVA then you can speak to your IP. And discuss what provisions are noted in your proposal to cover such an event.
It can be difficult to remortgage, for many reasons, and if it is not going to be possible you should see the details of how this will be dealt with in your IVA documents.
It could be that the IVA is extended for a period of time as an alternative, it could be that the IVA simply ends without any extension. These will be specific to your IVA and your IP will be able to explain in detail.
How should equity be worked out for a Protocol Compliant IVA?
The requirement with a Protocol Compliant IVA is to seek a valuation and attempt a remortgage to pay some additional funds into the IVA.
There will also be a list of reasons why a remortgage may not be possible, and will not be regarded as a failure if it cannot be achieved.
It is also likely to have clauses about any alternative action that may be needed if a remortgage is not possible.
If you contact the Supervisor of your IVA they will be able to talk you through the requirements of your IVA. The PCIVA is referring to the IVA Protocol and is a standardised set of terms to ensure that simple consumer IVAs are dealt with in a similar fashion.
What happens If do not pay my mortgage while on an IVA?
As a secured debt, your mortgage is not typically included under an IVA, and therefore it will remain your responsibility to maintain payments.
Your mortgage lender will have a legal right to repossess your property if you owe money and continually fail to make your mortgage payments, regardless of whether you are on an IVA or not.
If you’re struggling to make your mortgage payments, it’s important to speak to your IVA provider as soon as possible to discuss your options and seek advice. Your IVA provider may even be able to alter your IVA agreement in order to help you afford your mortgage payments.
What happens if we have equity in our property but can not remortgage it?
It depends on the terms of your IVA. The most common outcome, if you cannot remortgage at this stage of your IVA, is that the agreement will be extended for a further 12 months.
You will need to obtain a rejection letter from your mortgage company then your IVA supervisor will be able to inform you of what will happen in your case.
