Mortgages with an IVA

An IVA (or Individual Voluntary Arrangement) is a legally binding agreement between you and your creditors (people who you owe money to). It’s so you can repay your debts over an agreed time period, usually between 5 and 6 years. You can get an IVA for lots of different reasons, but generally they’re to repay debts you might have from:

• Bank overdrafts

• Personal loans

• Credit cards and store cards

• Catalogue debts

• Council tax arrears

• Hire purchase debts

• Funds owed to HMRC

An IVA is arranged by an insolvency practitioner. You and your creditors will agree on a payment plan that takes into account your current financial situation and how much you can afford to repay. An IVA is useful to stop you falling into more debt because your creditors agree to freeze the interest on what you owe, meaning you won’t continue to build up interest.  Plus, it gives both parties clarity on what will be repaid, and when.

Repayments under an IVA are usually made monthly, but can be made as a lump payment. At the end of the agreement, you won’t owe any more money to your creditors.  

Despite the positives, an IVA will show up on your credit file and will negatively impact your credit score and will stay on your file for six years. But the benefit of an IVA is the debt is frozen – and you can make repayments that are affordable to you.

Unfortunately, your credit score will go down after an IVA. This means it could affect your ability to borrow money – including credit cards, loans, mortgages or mobile phone contracts.

When lenders see an IVA on your credit file, they perceive you to be ‘high-risk’ because you’ve faced difficulties in repaying debts in the past. But it doesn’t mean you won’t be able to borrow any money.

Read more in our Guide: How Does an IVA Affect Your Credit Score?

An IVA will stay on your credit file for a period of six years, starting from the date that it was approved. It’ll be marked as ‘complete’ when you have settled the debt, but it’ll be visible for six years. During that time, your IVA will be visible to lenders. In addition, any debts that were included as part of your IVA may be included separately on your credit report. 

After the IVA has gone from your credit report, some lenders will ask you during the application process whether or not you have a history of credit issues. In that case, you should always let them know.

It’s a really good idea to declare an IVA on your mortgage application. Even if the IVA has dropped off your credit file because it was over six years ago, a lot of lenders will want to know if you’ve ever had any credit issues in the past.

It’s always better to be upfront and honest about any past credit issues because it’ll save you time and money further down the line. If you don’t let them know, you could end up starting to pay fees to later get refused if they find out. So honesty is definitely the best policy for everyone. A specialist IVA mortgage broker can help you find the best lender and put together a great application for you. Make an enquiry to get matched to your ideal broker.

Most lenders will want your IVA to have dropped off your file before they offer you a mortgage. That happens six years after the start date of the IVA. Specialist lenders are more likely to offer you a mortgage while it’s still active on your credit file (under six years from the start date). Specialist lenders will still prefer the IVA not to be recent. The less recent it is on your credit file, the more they’ll be likely to lend you.

You might be asked to put down a higher deposit to get a mortgage if you have had an IVA in the past. And it’s possible interest rates might be higher. A higher deposit is essentially less risk to the lender, so they might be more willing to consider you for a mortgage. It’s the same with a  higher interest rate –  the lender is getting a bigger return from you, and therefore it’s less ‘risky’ for them to lend to you.

But every mortgage application is a unique situation, and deposit amounts and interest rates will vary between lenders. If you’ve had an IVA, working with a specialist mortgage broker is the best option because they know the specialist lenders who’ll be willing to lend to you.

Read more in our Guide: What Deposit Do I Need for a Bad Credit Mortgage?

Usually, the higher your credit score, the easier it is to get approved for a mortgage. So it’s always a good idea to do what you can to improve your score before applying if you can. If you’re really pushed for time, and have a low credit score but need to get a mortgage soon; speak to a specialist IVA mortgage broker who will be able to advise you on your options.

Here are some top tips for improving your credit score with an IVA:

• Pay off any outstanding debt in full (including credit cards, loans, and similar). If that’s not possible, just pay as much as you can.

• Make sure you’re listed on the electoral roll. 

• Consider reviewing the number of credit cards and accounts you’ve got open. Even if they don’t have outstanding balances. 

• Use your available credit in a sensible way. For example, make small purchases on your credit card and pay off the balance in full each month. That can help build your score because it shows that you’re making repayments on time.

• Another option is to wait until your IVA has dropped off your credit file.

Read more tips on boosting your credit rating before applying for a mortgage.

When you’re in an IVA, there will be restrictions on your property. Your IVA agreement will include terms for your property, which will apply for the entire time you’re in the IVA. You’ll need to check your agreement to find out what the specific restrictions are. Usually, you won’t be able to remortgage while your IVA is still in place. 

Six months before your IVA is due to end, you’ll get a copy of your agreement from your IVA provider, or insolvency practitioner. They’ll do this to review the terms of your agreement. During the review, your IVA provider or insolvency practitioner will:

• Send you a copy of the property sections from your IVA proposal

• Ask your mortgage lender for a current statement to show how much it will cost to pay off your mortgage

• Do a valuation of your property

After they’ve done this, they should let you know what to do next. It’s always a good idea to check your credit rating at this point, so you know exactly where you stand and how lenders will see you after your IVA. You can  then work with your mortgage broker to see which specialist lenders will consider you for a remortgage.

It’s possible to lose your home if you don’t keep up with your payments. But as long as you keep up with your payments, your home will be protected. One of the main benefits of being on an IVA agreement is that you don’t need to sell your home to pay off your debts, so as long as you can stick to your payment plan, your home is safe.

You’re free to sell your home if you’re on an IVA, but depending on your situation, it could be better to wait until your IVA is completed. That’s because selling a home is expensive! There’s legal fees, valuation fees and stamp duty. Because you’re paying back a set amount to whoever you owe money to, it could be better to stay in a stable financial situation while you’re in the IVA.