Mortgages After an IVA

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Mortgages after an IVA – what are the options?

An Individual Voluntary Agreement can have a considerable impact on your ability to borrow for a property, but with the right lender and good advice, it is still possible to get a mortgage and buy a home.

What is an Individual Voluntary Agreement (IVA)? 

An Individual Voluntary Arrangement is a legal contract drawn up when someone owes a large debt to a company. An insolvency practitioner sets up the arrangement, usually a qualified solicitor or approved accountant.

An IVA is a way of avoiding bankruptcy by setting up a plan with the company to you owe money to. They may freeze the interest owed and agree to an affordable payment plan. You make monthly payments over several years to clear the debt.

How does an IVA affect my credit rating? 

An IVA can have a serious impact on your credit score. The purpose of your credit record is to tell finance providers about you as a borrower, and an IVA is an indication of previous debt problems – so they will be wary of lending to you.

The IVA will stay on your credit file for six years, and during that time it’s usually very difficult to borrow money in the form of loans or credit cards. 

What happens when an IVA has been settled? 

Once you have repaid the money owed the IVA is closed and you will receive a completion certificate from your insolvency practitioner. 

The IVA will still show on your credit report, but should now state that the arrangement is ‘satisfied.’ From this point, you have a better chance of borrowing as you no longer have an active IVA. 

How will an IVA affect my mortgage chances? 

It’s likely that you would find it difficult to repay both a mortgage and your IVA – or at least, that’s how a mortgage lender will see it. As a result, it’s unlikely you will get a mortgage while the IVA is still active.

Once you have repaid the debt, your chances will improve. You will probably still need to find a more specialist lender, as an IVA is a serious credit issue that will deter many mortgage companies. 

You may even find that once you have repaid the IVA and it has disappeared from your credit file, lenders will ask if you have ever had an Independent Voluntary Arrangement. Some companies will decline mortgage applicants who answer yes to this question.

Can I improve my credit rating?

It takes time to improve your credit score, and there is no quick fix. Generally, though, if you pay all your bills on time, and perhaps look at getting a special credit card for bad credit. Use these only for small purchases and pay the balance off religiously, and it should boost your credit rating.

How can I find a suitable mortgage?

While it is possible to get a mortgage after an Individual Voluntary Agreement, you will have a smaller choice of lenders, and you can expect to pay a higher interest rate. 

This does depend on how long ago the IVA was, though. If it has disappeared from your credit file (i.e. it was over six years ago) and you have worked on rebuilding your credit score since, you should be able to apply for mainstream mortgage products.

If you have repaid the debt and have had no credit issues for two to three years, you can apply for a ‘bad credit mortgage’ – which really just means finding a lender that will accept applicants who have debt problems on their record. 

As with any mortgage, if you have a good deposit saved, you’ll have more choice and more competitive mortgage rates. This is important, as it means your monthly mortgage repayments will be lower. A deposit of around 15% or more will help your chances of approval and get you better rates. 

How can a Mortgage Broker help?

At The Mortgage Brokerage, we help clients with all kinds of unique challenges, from debt issues to complex financial situations. As dedicated mortgage experts, we work with you as an individual to work out the best way for you to buy a home. 

The big advantage of a broker is that we know the market and the lenders that accept different customer circumstances. We will take you through various credit checks and help you apply for a mortgage where you meet the lender’s criteria. 

The Mortgage Brokerage (UK) Ltd Limited is an appointed representative of Quilter Mortgage Planning Limited, which is authorised and regulated by the Financial Conduct Authority. For an initial chat about how we can help you, contact our registered office in Gateshead today.

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