Can you get a mortgage after an IVA?
Individual Voluntary Agreement (IVA) is an adverse credit issue that can make it challenging to get a mortgage. That said, it is not entirely impossible to get a mortgage with an IVA, especially with the help of a specialist mortgage broker, however, you can expect a high-interest rate and higher deposit requirements as lenders consider you high risk.
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What is an IVA?
Individual Voluntary Agreement or IVA is a legally binding agreement between you and the creditor as an assurance to pay back the debt owed over time. Its main advantage is the creditor stops charging you interest or chasing you. However, you have to make the agreed payment, and you should not take any new credit until you settle the IVA unless you seek permission from your insolvency practitioner.
Although there are no minimum and maximum limits for setting up an IVA, a high fee is associated. An IVA is set up by a professional known as an insolvency practitioner, who charges an exorbitant fee. An IVA is not the best option for a total debt of less than 10,000 pounds. It is best suited if you have multiple creditors.
You can find an insolvency practitioner yourself or through a debt management company. However, a debt management company is more expensive as they charge additional fees on top of the insolvency practitioners’ fees.
An IVA works such that you agree to a repayment plan with the insolvency practitioner. The repayment plan is based on the amount you can afford, but your creditor must also agree. It could be monthly payments, a lump sum, or both.
A monthly debt management plan usually takes five to six years. You make payments to the insolvency practitioner, who takes a cut of their fees and sends the rest to the creditors. They review your repayment plan on an annual basis depending on whether there have been income changes on your part.
You will be expected to pay more in monthly instalments if you receive a pay rise at that work. Also, if you receive a lump sum amount of money in the course of the IVA, it will go towards settling your debt with your creditor. If the amount you pay throughout the repayment plan is insufficient to clear your debt by the end of the IVA, you will not be required to pay the balance.
Can you apply for a mortgage with an ongoing IVA?
It is extremely difficult to get a mortgage with an ongoing IVA. In the rare chance that you get a mainstream lender willing to lend you money, expect high-interest rates and deposit requirements.
You would have to request permission from your insolvency practitioner to apply for a mortgage. They will assess the situation and, at their discretion, decide whether to grant you the go-ahead. Waiting until you have settled the IVA before applying for a mortgage is best. However, remortgaging as a way of settling an IVA is quite common.
Lending criteria for a mortgage with IVA
The eligibility criteria for a mortgage with IVA differs from mortgage lender to mortgage lender. However, below are some of the factors they consider.
How recent is the IVA?
The longer it has been since the IVA, the better your chances of qualifying for a mortgage. Several aspects come into play that improve your chances of qualifying for a mortgage after an IVA. First, the longer it has been since you cleared the IVA means you have had more time to rebuild your credit history and score. It also means you have more time to save for the required deposit amount.
Furthermore, an IVA takes six years from the date it was registered to be removed from your report. Therefore, if you can wait for six years, the lender will process your application similarly to someone who has never had an IVA. Some lenders assess your qualification based on the time the IVA was satisfied rather than the date it was registered.
Although it is not impossible to get a mortgage with a recent IVA, it is much more complicated as very few lenders will be willing to look at your application. Buying a mortgage with a recent IVA is also more expensive as the interest rates are significantly higher.
Deposit
One of the top challenges of applying for an IVA mortgage is that you may not have enough deposit amount, yet the deposit requirement for a mortgage with such an adverse credit issue is quite high.
Due to how an IVA works, it is difficult for most people to save for a deposit. The deposit requirement for a mortgage with an IVA can be up to 30%. Most lenders, including specialist lenders, will decline your application if you do not have the required deposit amount.
Credit history since the IVA
Bad credit mortgage lenders will also look at your credit history to see if your creditworthiness has improved since the IVA was registered or satisfied. First, they will check if you have been making your IVA payments on time. They will also check if you pay your utility bills and rent on time. If you have already settled the IVA, they will check if you have new debt and how well you manage it.
Affordability
Aside from assessing your creditworthiness, lenders will also conduct an affordability test to determine if you can afford to pay a mortgage if awarded. Your affordability is determined based on your income, debt-to-income ratio, savings, assets, investments, and recurring expenses.
Typically, borrowers with a good credit score get four to five times their income, although you can get up to six times your income with a very good credit score. On the contrary, the credit limit for borrowers with adverse credit issues such as IVA is only three times your income. If it has been several years since the IVA, you may be able to negotiate a credit limit of three to four times your income.
How to get a mortgage with IVA
Below is an overview of how to get a mortgage with IVA.
- If you have an active IVA, seek permission from your insolvency practitioner. If you have already satisfied the IVA, you can go on to apply for a mortgage without contacting your insolvency practitioner.
- Find an experienced bad credit mortgage broker. They will review your credit report to identify any adverse credit issues that may make it difficult to get qualified for a mortgage. They will offer tips to improve your credit history if you have time before applying for the mortgage. Otherwise, they will match you with a suitable lender and assist you with the application process.
- Apply. Carefully adhere to the application process stipulated by your lender. Also, provide the required documents and information. Your mortgage advisor will guide you on how to customise your application to increase your chances of qualifying.
Alternatives for a mortgage with IVA
The best alternative for getting a mortgage with IVA is waiting six years for it to be removed from your record. If that is not possible, wait for at least two years after settling the IVA to apply for a mortgage. You will have a better chance of qualifying than applying immediately after satisfying an IVA or if you have an active IVA.
Another option would be to apply for a joint IVA with someone with a good credit record. Some lenders may be willing to overlook your credit issue and focus on your partner’s good credit rating.
Which types of lenders offer a mortgage with IVA?
Niche lenders are your best mortgage options with an IVA. They assess each application on a case-by-case basis and are more lenient than high-street lenders. They consider if your financial situation and creditworthiness have improved since your IVA was satisfied or registered.
Get a specialist broker
One of the first steps when applying for a mortgage with IVA is to find an experienced bad credit mortgage broker. They have extensive experience and networks in the niche mortgage market. Therefore, depending on your situation, they will match you with the most suitable specialist mortgage lender. They also understand the specialist lender’s eligibility criteria and will guide you through the application process.
Contact us today to get matched with a specialist broker.
FAQs
Does paying my IVA early help my mortgage application?
Yes, it increases your chances of qualifying for a mortgage with an IVA on your credit record. The longer it has been since you paid off the IVA, the better, as you get a lower interest rate and deposit requirement.
Can I sell my house with an IVA?
Yes, you can sell your house even if you have an active IVA. However, note that your creditors have a lien on the property. Therefore, any proceeds from the sale will first go towards settling the outstanding debt amount in the IVA. Nevertheless, you may be able to negotiate with your insolvency practitioner to pay a lump sum amount and the balance in instalments to keep some of the proceeds.
Can you remortgage with an IVA?
Yes, you can remortgage with an IVA. However, like a new mortgage, qualification criteria vary from lender to lender. Generally, lenders will review your application based on the amount owed on the IVA, whether the IVA is satisfied, how long it has been since the IVA was satisfied, if your credit report has improved, and your affordability.
It is best to remortgage with your current lender as they might not conduct a fresh enquiry into your credit history or an affordability test. If you want to remortgage with a different lender, work with a mortgage broker to find a suitable specialist lender.
Contact us now for expert mortgage advice if you have an IVA