Mortgage With An IVA: Is It Possible? (2024) (2024)

Poor credit history can be a blemish on your record, particularly if you’re looking to venture into purchasing property.

Due to certain personal financial circ*mstances, you may opt into an Individual Voluntary Agreement (IVA).

This agreement is a legally binding document between an individual and their creditors that ensures an agreed amount of the debt is repaid over a set duration.

But with an IVA on your credit report, the available number of mortgages may change drastically compared to what they would have been otherwise.

Let’s take a comprehensive look at the possibilities of getting a mortgage with an IVA and how to get one when needed.

How IVAs Work

As mentioned earlier, an IVA is an arrangement between an individual and their creditors meant for securing debt repayment over a mutually-agreed time frame.

Created by insolvency practitioners, the agreement is approved by a court and subsequently registered on the Insolvency Register. After this, the practitioner will have the debtor’s financial condition assessed to chalk out a suitable payment plan.

Simultaneously, the practitioner will keep the requirements of the creditors in mind as they draw up the repayment plan.

The plan is then relayed to the creditor, which explains all the intricate details. Typically, these plans remain in effect for about five years.

Then, it is up to the creditor to accept the plan, upon which charges and additional interests are frozen. Once in effect, the creditor will be unable to make increased payment demands per the IVA terms.

The debtor repays their debt to the insolvency practitioner to avoid any friction between them and the creditor. The practitioner pays the creditor the required amount after deducting their fee from the amount.

Any remaining payable sum at the end of the agreement duration is written off, and the debtors need not pay the creditors any longer. It is then that the record of the IVA is struck from the Insolvency Register.

Can I Get a Mortgage With an IVA?

If you have an IVA, it is worth noting that getting a mortgage is completely possible. However, there are a few points worth noting about this.

Firstly, while it is still possible to find mortgage products through specialist IVA lenders, the likelihood of getting one is relatively low.

Secondly, lenders will assess your credit history and may deem you high risk because of the IVA. This can also heavily influence the lender’s decision to approve you for a mortgage.

And lastly, applying for a mortgage after an IVA is a rather complex process. The presence of the agreement on your credit history is the point of contention that makes matters more difficult to deal with.

High-street lenders may outright refuse your mortgage application, particularly if the IVA has yet to end.

Specialist IVA Lenders

Specialist IVA lenders make the process of getting a mortgage with an IVA significantly less difficult. Such lenders offer mortgages to those who have an active IVA or had one in the past.

The downside of enlisting the help of a specialist IVA lender is that you may have to pay a larger deposit sum upfront.

Moreover, the interest rates will be rather high as well, which can make a IVA mortgage an expensive affair.

All of this can vary, as lenders make a decision on a case-by-case basis and their lending criteria at that time. Your financial condition plays a large role in this, meaning that the better your financial status, the greater the chances of a reasonable deal.

As the borrower, be sure to ask the lender as many questions as you need to about the details of the mortgage and what will be involved within the application process. .

How An IVA Affects A Mortgage Application

Having an IVA on your credit history may make getting a mortgage challenging, but it does not spell doom for your mortgaging prospects.

The agreement shows that despite going through financial turmoil, you took responsibility and resolved any debts you had previously.

So, despite being a little detrimental to your mortgaging possibilities in comparison to a clean credit history, there may still be options.

Getting a mortgage with an IVA is usually a simpler prospect than getting one after having filed for bankruptcy.

Risk Factors For Mortgage With An IVA Considered By Lenders

1. Credit History

The role of an IVA is to showcase the change in the behaviour of a former debtor and how much of a risk they pose. These elements are shown in the debtor’s credit history.

An IVA lowers your credit score and is shown on your credit history as well, which will be visible to a mortgage lender.

If you’ve had a serious problem in addition to the IVA, the mortgage deals accessible to you will be highly limited.

If your credit report is healthy after the end of the agreement period, then a mortgage at a reasonable rate is much more likely as you have shown an improvement since the IVA was registered.

The more historic the IVA is, the better your chances of getting a great mortgage deal.

Once a few years have elapsed after the end of an IVA, the agreement may not play a factor in the mortgage deal at all with some lenders. Once again your track record since the IVA will then play a big part.

However ultimately, it is better to expect a larger deposit sum required and higher interest rates. This is especially the case if it has not been too long since the end of the IVA period.

2. Affordability

Evidently being able to afford a mortgage is one of the more important factors to consider when applying for a mortgage.

With an IVA, lenders may assume that you may not be able to pay the mortgage consistently due to what has happened in the past.

This poses a major hindrance to the success of your mortgage application, which makes limiting expenses paramount in the months leading up to the application.

This is because ultimately some IVA specialist lenders may be more favourable towards your application if your affordability is really strong compared to the loan amount being granted.

Expect raised interest rates and higher deposits required from lenders as a part of a financial stress test.

This test will showcase your ability to pay off the mortgage in financially difficult times in case your financial situation changes or interest rates are likely to increase in the future.

3. Income

Your income has bearings upon the deal you receive for a mortgage.

Not only does it factor into the size of loans available, but it also plays into whether your application will be approved or not. A higher income will increase your chances of being approved for a mortgage, as will income stability.

After an IVA, you may want to deal with a specialised lender who examines the application with a broader outlook and allows more varied sources of income.

They tend to consider more complex income streams while evaluating an application, which increases your chances of getting a mortgage if this is what you have.

Some of the more complex income streams that may be eligible for consideration include, but are not limited to, the following:

• Self-employment
• Contractors
• Forms of pensions
• benefits

It’s worth noting that the more complicated your income streams become, the less likely it becomes for a lender to approve the application. Lenders typically prefer if the borrower has an easy-to-follow income stream as then there is more reliability over this long term.

4. Loan-To-Value Ratio

The ratio of the loan and property value, known as the Loan-To-Value (LTV) ratio, is a major factor in mortgages. Borrowers must pay the amount not covered by the loan as a deposit, which is determined by this ratio.

For lenders, the purpose of the LTV ratio is to reduce the risk of losing the loan granted in the event of repossession. Should the borrower fail to repay the loan, the lender possesses the right to claim ownership of the property to recoup the loss.

With a low LTV, the chances of recouping the losses become much higher for the lender and vice versa. Lower LTVs also protect against properties losing value and a negative equity situation arising.

As such, for those with a clear credit record, lenders may consider loans that have a high 95% LTV ratio where the risk of negative equity is greatly enhanced..

Of course, with an IVA, this ratio can decrease since the agreement lowers your credit score.

Typically, the LTV ratio goes only as high as 75% or 70% for those with an IVA. A specialist broker may be able to find you a mortgage product that permits a higher LTV.

Note that as time passes and your credit report improves, this ratio will also improve. After three or four years of good credit, expect the ratio to reach as high as 90% in certain circ*mstances.

FAQ

1. How can I improve my credit score after an IVA?

Improving the credit score after an IVA is a matter of time. The more time that passes after the end of an IVA and the fewer credit issues you run into, the better your credit score will become.

2. Am I required to declare an IVA in mortgage applications?

Yes, declaring an IVA is mandatory when applying for a mortgage. Applications include questions that property brokers and lenders expect honest answers to.

It’s important to be as transparent as possible and include information about any monetary issues and usages of debt solutions.

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.