An IVA can definitely present an attractive solution to people in debt but one thing that has to be kept in mind is that an IVA does come with its own set of restrictions. 

Chances of you being able to secure a mortgage during your IVA are fairly slim and there are definitely some things to consider if you already have an IVA before entering into your IVA.

An IVA can also affect your chances of getting a mortgage even after it has been settled. 

How Badly Does an IVA Affect my Credit Rating?

An IVA can definitely have a significant impact on your credit rating as it stays in your credit file for six years after the start of your IVA. This means that if your IVA lasts 5 years, then the IVA will remain in your credit file for another year after your IVA has ended.

Your credit rating can be defined as your entire financial history. It’s a record of all of your past dealings and payments. Thus, if someone needs to know how punctual you are in your payments, all they need to do is look up your credit rating. Whenever lenders are considering loaning you money, your credit rating is the first thing they will look up. 

During your IVA, you are not allowed to obtain a credit of more than £500. If you wish to secure a credit higher than that then you’ll have to secure permission from your insolvency practitioner. You may be able to then secure credit but keep in mind that it has to be for an appropriate reason such as the successful running of your business. While you may be able to secure credit like this, there’s a chance that you may be charged higher interest rates. This could lead to you landing in even more debt. Thus, you need to be extra careful. 

In conclusion, while the IVA is present in your credit file, you’ll find it much harder to secure credit. However, if you make your payments on time and practice good financial habits, the net result is eventually going to be your credit rating improving once the IVA is removed from it. 

How can My Mortgage be Affected by an IVA? 

If you have a mortgage on your property when you decide to enter into your IVA, your creditors will definitely not ignore this fact. They will look at the current market value of your property and the amount you currently owe to your mortgage provider.

Considering these two costs, your creditors will most likely assess if there is any realisable equity in your property. If this happens to be the case, your creditors might ask you to make changes to your IVA proposal in order for it to include you remortgaging your property during the course of your IVA so that you can introduce some or even all of the released equity into your monthly IVA payments. 

Even if there is no equity in your property, your creditors might look at the size of your monthly mortgage payments. If they feel that they are excessive and are impacting the amount you can pay in your IVA payments, they might ask you to sell your property and move to rental accommodation, thus, significantly increasing the amount you can pay in your IVA payments.

They’ll propose this as a change in the terms in your IVA, you’ll have to agree to it because otherwise, your IVA will fail. Generally, if your monthly mortgage payments exceed 40% of your total income, most creditors will deem that excessive and will most likely ask you to sell your property. 

This may be concerning to read to you right now but you should not worry too much. Don’t forget that your partner may have equitable interest in your property as well. Oftentimes, this is 50%. In other cases, your family may also have rights to your property which would make a forced sale very difficult for creditors. Thus, while many creditors will pressure you to sell your property if you have a mortgage, oftentimes, it can be quite difficult for them due to several reasons such as the ones we’ve mentioned above.

Remortgaging during an IVA is not as difficult as finding an initial mortgage for your property during an IVA. However, you may still have significant difficulty finding a mortgage company that would lend to you considering your situation. 

If you are unable to secure a remortgage to your property, your creditors may ask you to make extra monthly payments into your IVA. This is normally seen as increasing the period of your IVA by another 12 months. 

iva mortgage

Can a Windfall Clause in my IVA Stop me from Getting a Mortgage?

A windfall clause is inserted into an IVA by creditors. It states that during the course of your IVA, if you are to run into a large sum of money such as through a lottery or by inheriting it from a deceased relative, then 100% of this sum would be handed over to your creditors.

Note that handing this sum over to your creditors would not mean a decrease in your monthly IVA payments. Your monthly IVA payments would remain the same as if nothing happened unless the windfall sum is so large that it pays off the entirety of your debt

During your IVA, if you manage to save up money for your mortgage deposit, your creditors might take notice of this. They may ask you where all this money came from and whether it was part of a windfall. Hence, you may have this sum taken away from you or at the very least, it may become a source of tension between you and your creditors which could even lead to the termination of your IVA.

Will it be Difficult for Me to Get a Mortgage After my IVA is Settled?

As we’ve mentioned before, your IVA will stay on your credit file for six years after your IVA starts. This is normally a year after your IVA is completed as most IVAs last five years.

Hence, for that one year after your IVA ends, it will definitely be extremely difficult for you to find a mortgage company that would be willing to deal with you. Even if you do end up finding one that is willing to lend to you, it will probably be at a high interest rate. 

That being said, in a situation like this, time is definitely your strongest ally. It’s definitely a good idea to wait until your IVA has been erased from your credit file before you start looking for a mortgage. Not only will the process of finding a mortgage be a lot less stressful but it’s definitely likely that you’ll find a lower interest rate for your mortgage than you would have if the IVA was still present on your credit file.  

If you’re having difficulty securing a mortgage after an IVA, you can opt to seek advice from an independent debt charity such as StepChange.

Conclusion

An IVA puts several restrictions on you that you have to abide by throughout its course and this includes your ability to secure a low-interest mortgage. Also, if you’re already in a mortgage, an IVA can definitely exacerbate the situation. 

However, doing your research and knowing your rights can definitely help you make sure that you don’t lose any property that is rightfully yours.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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