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Author: Alex Swindells

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Can You Get a Mortgage with an IVA?

Written by Alex Swindells on . Posted in IVA.

Getting a mortgage with an IVA (Individual Voluntary Arrangement) is possible, but there are challenges to consider. If you enter into an IVA, it is likely that you already have high debt levels and poor credit. This will be taken into consideration when applying for loans. Restrictions on borrowing during the IVA will also cause potential problems. However, it is not impossible to get a mortgage.

This article contains important considerations you need to take into account when considering obtaining a mortgage whilst on an IVA.

Getting a Mortgage with an IVA

Person holding keys for house

During an IVA, your debts will effectively be consolidated into one single payment. You will then enter into a payment plan, which you must adhere to for the duration of the IVA. There are also financial restrictions you must follow during the IVA, especially where borrowing is concerned.

If you want to borrow more than £500, you need written permission from your Insolvency Practitioner. So, even though you can technically get a mortgage, you need to seek their approval first.

It is important to discuss this with your Insolvency Practitioner beforehand and explain your reasoning for getting an IVA mortgage to them so they can advise you.

Will I need a specialist mortgage lender?

If you do decide to apply for a mortgage during your IVA, you will most likely need to work with specialist mortgage lenders. These lenders typically offer a wider range of products and can work with people who are in an IVA or previously have been. However, they will come at an extra cost in terms of fees and interest rates, and you will need a larger deposit.

Standard lenders will not consider your application, in most cases, so you will be limited in terms of loan options and you will need to work with more specialist lenders.

How does an IVA affect a mortgage application?

empty application form

An IVA can have a profound effect on the mortgage application process. Bear in mind that your main responsibility is paying into your IVA and clearing your debts. The restrictions exist to ensure that all available money goes towards the IVA. If you do obtain a mortgage, you may first need to agree to attempt to release equity from it towards the end of the IVA

There are also several factors that will affect the application process and dictate how much you can borrow and what interest and fees you will pay. Consider the following:

Disposable income

Lenders will consider your disposable income when deciding whether you can afford a mortgage or not. However, the majority of your disposable income must go towards your IVA. This will affect how much you are able to borrow. If you are currently paying rent, then the amount you are paying for rent each month is likely to be the best indicator of what will be affordable to you in terms of a mortgage repayment.

Credit report

An IVA is listed on your credit report and it can have a severe negative impact on your credit score. Lenders will do a credit check to determine your risk as a borrower. Having an IVA on your report will work against you and some lenders are far more likely to reject your application altogether.

Unaffordable rates

The likelihood of your mortgage application being rejected is much higher when you have an IVA. However, even if you are accepted, it is likely to be a comparatively expensive mortgage with high interest rates because of your poor credit score. Currently, the majority of your excess income is going towards your IVA. Paying an expensive mortgage puts more pressure on you and makes it much harder for you to manage your finances. In many cases, you will find that you are unable to afford a mortgage even if you do qualify for one from a specialist lender.

How to get a mortgage with an IVA

Row of little red houses

You may decide that getting a mortgage is the right option and you are able to afford it. In that case, the first thing you need to do is get permission from your Insolvency Practitioner. If you apply for credit over £500 without permission, you breach the terms of your IVA you put yourself at risk of the IVA failing, leaving you to deal with the demands of your unsecured creditors directly once again.

When you ask for permission, your Insolvency Practitioner will consider:

  • If the mortgage is necessary
  • How long it will take you to repay
  • Whether you can comfortably pay it alongside your IVA payments

Bear in mind that they can deny your request if they don’t feel that it is the right decision. They will be particularly mindful of whether it is to the benefit or detriment of the IVA creditors to allow you to obtain the mortgage.

If they do approve in principle, you need to start comparing deals. Make sure you weigh up a lot of options to find the best interest rates and deposit amounts. Tread carefully where specialist lenders are concerned.

When you think you have found the right deal, the insolvency practitioner will need to know the amount of the monthly mortgage repayment, in order to satisfy themselves that it is acceptable, before confirming their permission.

Applying for a mortgage after an IVA

Getting a mortgage after an IVA could be a far better option than applying while you are still subject to the arrangement.

Once you have finished making the payments and you are released, you are no longer bound by restrictions, so you can borrow normally without needing permission. You also have full control over your disposable income and no debts to pay, so you are likely to be able to demonstrate a higher disposable income and affordability, which should broaden your borrowing options.

However, the IVA still remains on your credit report for six years and it has a negative impact. Lenders may give less relevance to the IVA as time goes on. So, if you wait a few years, you stand a much better chance of getting a favourable interest rate than you would if you applied immediately after your IVA.

Giving yourself some time also allows you to build your credit rating and save a larger down payment, so when you do eventually apply, you can get a more affordable mortgage. Keep in mind that a rejected application will damage your credit score, so your likelihood of acceptance should be considered carefully before making an application.

Find Out Whether You Could Be Better Off With An IVA.

Am I Eligible For an IVA?

Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.

Twenty Pound Notes IVA

What Are The Implications Of An IVA?

Written by Alex Swindells on . Posted in IVA.

An Individual Voluntary Arrangement (IVA) is a formal debt solution that typically allows you to make repayments that you can afford, over a set period, with any outstanding debt written off at the end of the agreement. 

However, every case is unique and before making any decisions, it is important to consider the wider implications of an IVA and whether other options like bankruptcy may be a better alternative. There are a number of ways that an IVA will impact your life and your financial situation.

How will an IVA impact your job?

Man walking to work with briefcase in hand

Usually, an IVA will not impact your job, but there are important exceptions. If you work in a position of financial responsibility (bank clerk, accountant, solicitor, etc) it is expected that you uphold a certain level of personal financial stability. So, in this case, an IVA may affect your job and you may not be able to continue in that position until it has finished. Some other positions of responsibility, like working for the police and prison service or the fire brigade, may be affected. If you own a business, you can continue operating. However, it will be harder to find credit. 

Before entering into an IVA, speak to your employer and review your employment contracts to determine whether you are affected or not.

Does an IVA impact your future income?

Calculating income on smart phone

This is dependent on your career plans. If you want to enter one of the careers listed above, it could be a problem. Otherwise, it should not impact your future income. 

However, if you are planning to sell assets during your IVA, you may have to put some or all of the income from the sale into debt payments.

How will an IVA affect your possessions and assets?

Five pound note rolled up

When you enter into an IVA, you must declare all of your assets to your Insolvency Practitioner who will work with you to draft your offer of repayment to creditors (your ‘Proposal’). All of your significant assets will be listed within the proposal as creditors need to see an accurate reflection of your financial circumstances in order to make a decision as to whether your offer seems reasonable and fair to them. There is no legal requirement for you to sell or surrender any particular assets of value as part of your offer, however, generally speaking, creditors are unlikely to agree to write off debt for you if they believe your assets are of excessive worth which could be sold to help repay the debt.

If you are a homeowner, and have equity available in your property, it will be expected that your proposal will include your agreement to attempt to release a portion of this towards the end of your IVA. The inclusion of home equity, as well as any other significant assets, will be discussed and agreed with you during the process of putting your IVA proposal together.  

Can you get a mortgage with an IVA?

Man holding house

Getting a mortgage during your IVA can be difficult. You must seek approval from your Insolvency Practitioner if you want to borrow more than £500. 

An IVA (as with any form of insolvency) is recorded on your credit file for 6 years from the date it is approved, and is publicly available information as it is disclosed on the Insolvency Register. A mortgage lender or broker will assess your application against lending criteria. The fact that you have been declared Insolvent could affect whether a mortgage is available to you, or the rate that will be offered.

How long does an IVA stay on a credit file?

An IVA stays on your credit report for 6 years from the date of approval. 

Does an IVA affect financial mis-selling compensation?

In many cases, as part of your proposal to creditors, the Insolvency Practitioner will agree to pursue potential claims on your behalf. Any money that you are awarded is considered an asset of the IVA and it will help repay the creditors in the IVA.

What other restrictions does an IVA have?

An IVA has other restrictions that you should be aware of when making your decision: 

  • Missed payments – you must maintain payments towards your IVA. If you miss the equivalent of 3 monthly payments without any agreed payment breaks being sanctioned by the Insolvency Practitioner, then you will be in breach of the terms of the arrangement. If this is not remedied, your IVA may fail. Any payments that are agreed to be missed, still need to be paid at the end of the arrangement meaning that it could last longer than initially proposed.
  • Taking out additional credit – You are unable to take out any additional credit, of more than £500 without the prior consent of the Insolvency Practitioner. This includes use of catalogues and overdrafts .
  • Budget restrictions – When proposing your IVA, you are required to put all of your surplus income towards debt payments, and live within a budget. During the lifetime of the IVA if your financial situation improves, you are required to disclose this to the Insolvency Practitioner and your payments may increase.

Is An IVA Worth It?

There are a lot of IVA advantages to consider. You can write off a significant portion of your debt, in some cases, and you will avoid high-interest payments. Ultimately, it allows you to clear your debts and secure your financial situation. 

On the other hand, you must consider the IVA disadvantages when weighing up your options. It does impact your life and finances in a number of ways and you should think carefully about whether you are willing to deal with the implications. 

In the end, it all comes down to your own personal financial situation. At Swift Debt Help, we can advise you on whether an IVA is the right option for you and take you through the alternatives if it is not. Fill in our form below to find out if you are eligible for an IVA.

Find Out Whether You Could Be Better Off With An IVA.

Am I Eligible For an IVA?

Disclaimer: For guidance only. Financial information entered must be accurate and would require verification. Other factors will influence your most suitable debt solution.