Mortgage with a Recent or Current IVA.

What is an IVA?​

 

An individual voluntary arrangement is an agreement between you and your creditors to repay debts, which is legally binding. It is arranged by an insolvency practitioner.

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The monthly payment and timeframe is agreed upon and interest is frozen. A lump sum payment can also be agreed. The debt is cleared at the end of the agreement. Unlike a Debt Management Plan, an IVA will show up on your credit file. 

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IVAs help relieve the pressure of mounting debt by providing a monthly payment plan. Instead of making multiple monthly payments to different creditors, there is one single payment to make. The IVA is normally arranged for 5 or 6 years, and once it is settled, all the credit commitments are wiped.

Your insolvency practitioner will contact your credit providers and will oversee the process of setting up your IVA.

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Will an IVA impact a mortgage application?

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Having an IVA on your credit record will make it more difficult applying for a mortgage. It shows that you went through period of financial trouble, however, it does indicate that you took steps to resolve these issues.

 

Mortgage lenders will want to see evidence that the payments made on the IVA were on-time and in full. Speak to a mortgage advisor if you did not manage to make all payments on schedule. 

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How much deposit do I need to put down?

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The deposit amount is required depends on how recently the IVA was paid off. Please see the typical deposit amounts below:

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Ongoing IVA - 30% deposit is required + funds to clear the IVA on completion.

Less than 1 year since IVA - 20% is required

Between 2 - 3 years since IVA - 15% deposit is required

Over 3 year since IVA - 10% deposit required

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How long does an IVA stay on my credit file?

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An IVA will stay on your credit file for 6 years. You are able to check this by requesting a credit report from providers, such as Experian, Equifax and Transunion. Some lenders require a clean credit history after settling your IVA. Even if your IVA drops off your credit report, many lenders will still not consider a mortgage application as you will need to be discharged for 6 years.

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Should I pay off my IVA early?

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We always recommend you pay off your IVA as soon as possible. Time is one of the biggest factors when determining your mortgage options. A person who paid off their IVA three years ago will get a much better interest rate compared to someone who paid it off one year ago.  

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Do I need to clear my IVA before applying for a mortgage?

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You do need to clear your IVA before applying for a mortgage, however, it would need be cleared by completion. Typically, lenders will not allow an IVA to continue throughout the mortgage and will require this to be settled. Speak to your IVA provider to discuss the settlement process and how much is required to clear this.  

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Can I remortgage to clear an IVA?

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It is common to remortgage and clear an IVA when you are in a stronger financial position. It is important to determine how much is required to pay off the IVA and if it makes financial sense to settle this. Lenders will typically require at least 30% equity in the property to consider a remortgage. It may also be possible to apply for a second charge to clear the IVA, instead of a remortgage.

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Can you pass a credit check while in an IVA?

You are still able to borrow while still in an IVA, however, the options are very limited. There is a cap to how much can be borrowed (normally £500), as there are strict rules for people in IVAs. Your Insolvency Practitioner will review your current commitments and assess if new credit commitments can be taken out. Many credit providers may be unable to assist people in IVAs as it is viewed as ‘risky’ lending. 

Once you have cleared your IVA, you can borrow without the restriction of an IVA. However, please note, the IVA will stay on your credit file for 6 years from the registration date. If it was arranged recently and settled early, it is likely to have a significant impact on your credit options. For some lenders, it is viewed as the last step taken before bankruptcy. However, others have a more open-minded view of IVAs, and understand that it is often a proactive step to manage personal finances.
 

Can you get a mortgage with an active IVA?

Yes, it is possible. However, you would need to clear the IVA at completion. The IVA could not continue to run alongside your mortgage. Mortgage lenders will be cautious about lending as you still have commitments to your previous creditors and it is unlikely your Insolvency Practitioner will approve of a new mortgage.

For instance, if you are a first-time buyer or moving home and have an IVA in place, you would need to use your own funds to settle the IVA early. This can be done before, during, or after the mortgage process.
 
Can you get a mortgage after an IVA?

Once you have completed an IVA, it is in theory possible to get a mortgage. However, if it still showing on your credit report, the lender may request a completion certificate. Sometimes this can take up to 6 months to be issued, however, often your IVA provider will be able to expedite this if required. Certain lenders will not require a completion certificate if you pass their credit score. 

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If the IVA has dropped off your credit report or has been settled for several years, the options tend to be much better.  

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Do I have to declare an IVA on a mortgage application?

When submitting a mortgage application, you need to disclose information regarding your past and current credit commitments. Most lenders will overtly ask if you have been subject to an IVA in the past 6 years. Even if the IVA has dropped off your credit report, you will be required to disclose the IVA. Please ensure that you disclose the IVA to your mortgage broker. 
 

If the IVA is not disclosed (or any credit issues you have faced in the past 6 years), you may be committing mortgage fraud, which could have serious consequences.

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How can I improve my credit score after an IVA?

Once you have closed your IVA, you should focus on repairing your credit score. There are several proactive steps you can take to help improve the score and enhance your mortgage options:
•    Don’t miss any payments on your credit commitments (including credit cards, hire purchases, personal loans).
•    Make sure you are on the electoral register, and it is kept up-to-date.
•    Review your credit report and correct any mistakes.

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What is the IVA windfall clause?

You must be aware of your IVA’s terms and conditions. These often have implications for your proposed mortgage. For instance, when purchasing or selling an asset (such as a property), your Insolvency Practitioner will need to be aware of this and may need to approve it.

 
You may trigger your IVAs ‘Windfall Clause’ if you purchase or sell a property as creditors may be entitled to these funds. Speak to a qualified legal advisor if you have questions relating to this. The ‘Windfall Clause’ may also impact gifted deposits; therefore, you should seek specialist advice.

It is especially important to consider this if you are looking to move home or downsize to clear the IVA. Often, IVA providers will demand you use all the proceeds of the sale of your home to repay creditors. However, it is possible to agree on a settlement figure. Your Insolvency Practitioner will present the settlement figure at a meeting, and your creditors will decide to agree to this settlement or not. Each IVA provider will have different rules. 

What mortgage lenders are available?

Only certain lenders will consider an applicant in a current or recent IVA. Specialist lenders will consider your application; however, the rates tend to be higher, and the deposit requirements are also higher. A handful of Highstreet lenders will consider your application, however, the IVA will likely have to be off your credit report. 

Typically, lenders will only accept applications via an intermediary due to the complexity of an IVA. Furthermore, not all brokers will have access to these specialist lenders, therefore, you will need to speak to a specialist IVA mortgage broker. 

Many lenders will advertise they can assist people with recent IVAs, however, there are strict lending rules that often result in declines. An experienced advisor will identify the lenders that have a good track record in helping people with IVAs.

Your IVA will be listed on the Individual Insolvency Register while you in your IVA and 3 months after settlement - Individual Insolvency Register. The Insolvency Service will then remove you from the register. 

Your IVA provider will contact the credit reporting agencies to update your credit report. Please ensure this information is correct on your credit file (paying close attention to the dates, as this will impact your credit score).

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What happens if it is a joint mortgage?

If you require a joint mortgage and one applicant has an IVA, and the other doesn’t, you still likely need to use a specialist lender. Lenders will assess an application with a ‘worst case scenario’ mindset. This means that they require that both applicants meet their lending criteria, even if one applicant has a clean credit profile. 

For this reason, you may consider a sole application. However, if you are married, most lenders will require both partners to be on the mortgage application or will run a credit check on the other applicant. Some lenders do accept a sole application for a married couple.

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Right to buy with an IVA

If you are looking to utilise the Right to Buy scheme and purchase your property from the council, this is still possible despite an IVA. You can use the Right to Buy discount as a deposit for the purchase, which is very helpful for mortgage applications as the deposit requirements are higher.  

It is possible to lend against 100% of the discounted purchase price. If the IVA is ongoing (not settled), you would need to use your own funds to clear the IVA before the mortgage starts.

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Shared ownership with an IVA

This is not usually an option for applicants with IVAs. Although, lenders may have the risk appetite to lend to people with current or recent IVAs, shared ownership companies rarely share this viewpoint.