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Can You Get a Mortgage with an 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.

Debt, Debt Help, Debt support, Individual Voluntary Arrangement, IVA, Mortgage