Mortgage and IVA’s
Advisors are asked a lot by prospective borrowers if it is still possible to get a mortgage with an IVA.
Prior to the banking crisis of 2008, mortgage lenders had fewer restrictions on approving mortgages for individuals with bad credit. Since then lenders have tightened their belts and adopted more caution.
Whilst having an IVA will get you out of debt it is considered one of those bad credit issues that can severely affect your chance of getting a mortgage. However, every lender is different and there are those that specialise in adverse credit, so it is still possible to get a mortgage having had an IVA.
That being said, it is not a straightforward process. Lenders will consider you to be high risk with an IVA and it can heavily influence their decision, so you can’t just walk into a high street lender and expect to be approved.
Getting a mortgage following an IVA will require you to find lenders who specialise in adverse credit mortgages.
One of the most commonly asked questions is whether you can get a mortgage after an IVA. An IVA can help you get out of any debt you might have – but are you able to get a mortgage after an IVA? While it may be a little trickier to get it all signed off, it’s not impossible to do. Let’s take a look.
What is an IVA?
An IVA is an Individual Voluntary Agreement, and it is effectively an agreement between someone who is in debt and their lenders, with the aim of staving off bankruptcy. If you’re not able to pay off your debts in full, an IVA allows you to come to an agreement with the lenders to freeze any interest you’re accruing, as well as to reduce the amount owed.
The first step with an IVA is to employ an insolvency practitioner who will petition your debtors on your behalf to agree to a repayment schedule that you can afford. Depending on the amount of debt you owe, this could last for several years, with monthly payments being made until the amount is paid off.
Prior to the banking crisis of 2008, mortgage lenders had fewer restrictions on approving mortgages for individuals with bad credit. Since then lenders have tightened their belts and adopted more caution.
An IVA or an Individual Voluntary Arrangement is a means to pay back your debts to creditors when you come into financial difficulties. Arranged by an insolvency practitioner and approved by the court, it is a legally binding agreement between an individual and their creditors to pay back their debt over fixed a period of time. At the end of this time you will owe nothing else to your creditors and your IVA record is officially removed from the Insolvency Register.
IVA and Your Credit Score
IVA’s will affect your credit score for several years. If you have an active IVA, your chances of getting a loan, or opening a credit card account will be significantly reduced – this includes your chances of getting a mortgage approved as well.
An IVA will remain on your credit history for at least 6 years, starting from the date the IVA commenced. During this time, it will be tricky to get any sort of loan or enter any kind of credit agreement. When the IVA is settled, you’ll receive a completion certificate, which will also end up on your credit report.
Improving your Credit Score after an IVA
The best way to guarantee getting accepted for a mortgage after an IVA is to try and improve your credit score. This will happen organically after your IVA has been paid off, but it’s worth noting that even after 6 years when the IVA has been removed from your credit history, your score may still not have properly recovered.
Your credit history will also be quite slim due to the fact that you haven’t been able to borrow during the IVA, so lenders won’t have a lot to go off to try and judge your creditworthiness. It’s worth waiting for the IVA to drop off your credit history before considering a mortgage, as you may not have the necessary savings to put towards the mortgage deposit throughout that time.
Can I get a mortgage with a current IVA?
The market is narrow for those currently in an IVA. However, there are some lenders that may consider applications.
Applications made will have to follow strict guidelines. You may have to have 12-24 months of no missed payments and the LTV (Loan to Value) will be less than a straightforward mortgage meaning you will need a bigger deposit.
Another consideration should be made towards the implications of acquiring a large asset whilst in an IVA. As your insolvency practitioner will have assessed your financial situation and produced a payment plan based on this, any changes to your finance would have to be reflected. Becoming a homeowner during the term of the IVA is potentially an ‘after acquired asset’ and there may then be implications related to the ‘windfall clause’ of your agreement. If getting a mortgage during your IVA is something you are looking to do you would need to seek the advice of your insolvency practitioner.
I have a historic/completed IVA, will this improve my chance of getting a mortgage?
As we’ve said getting a mortgage after an IVA is still not a straightforward process. However, you are more likely to be approved for a mortgage with a historic IVA, need less of a deposit and be offered more competitive rates.
Your IVA and any other credit issues will stay on your credit report for 6 years. Regardless of whether you settle your IVA earlier than that, it will remain on your report for any potential lenders to view.
Each lender has different criteria so some may consider you if the IVA was settled over 3 years ago, whereas another will require you to have settled 3 years ago but have been registered 6 years ago.
Yet, even if your IVA has been settled and been cleared off your credit file some lenders will ask you to declare whether you have had any credit issues. You should always be honest and up front about this as it won’t do any good, even if it means that lender may decline your application.
How to get a mortgage after an IVA
If you walked into a high street lender the chances are that they won’t consider you if you have an IVA. You will need to seek out specialist lenders who deal with adverse credit.
Your application will need to be correct from the start, have a clear plan and be placed with the right lender based on your circumstances. This is where seeking help from a whole of market mortgage broker who specialises in adverse credit is paramount.
They will ask you questions and make assessments about your individual circumstances. They then have the knowledge of a number of lenders that may fit your circumstances. This could then lower the risk of decline.
One thing you can do to help yourself is to check the 3 main credit reports that lenders will view. Check what is registered on your reports and that the information is correct. This is because some credit agencies can make errors. Also, having further credit issues on your reports following your IVA will also severely hinder your chances of mortgage approval. You can use sites such as Check My File to view all 3 reports.
It is important to remember that lenders will assess other factors aside from your credit file such as affordability. They will look at your income, outgoings and other financial commitments.
Speaking to a mortgage advisor, they will go through all of your information and ask questions such as how much you are looking to borrow and what deposit you have, as well as specifics regarding your IVA and any other credit issues you may have. With this information advisors can then see which products and lenders you would qualify for. You may also still be eligible for a Help to Buy mortgage.
Contact us at Online Mortgage Guru on 0345 3669799 or email us via info@theonlinemortgageguru.co.uk and we will put you in touch with a suitable specialist to handle your enquiry.
