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Mortgage After IVA – What Are The Rules in 2022?

Individual Voluntary Arrangement

An IVA, while very useful for helping you get out of debt, can be a major hurdle towards getting a mortgage loan.

If you’re someone who wants to get a mortgage loan after an IVA, you’ve come to the right place. 

So can you have an IVA with a mortgage?

There are a number of factors to learn in this regard. I’ve compiled a guide on everything you need to know about getting a mortgage IVA or a mortgage with IVA.

Let’s get right into it.

What are IVAs?

IVAs are legal procedures that allow you to pay back what you owe as fixed monthly payments (in instalments) over a specified period.

IVAs are designed to help people in debt pay their debts back progressively and under easier financial circumstances than usual.

IVAs are classified as insolvency solutions.

The way it works is that, once approved, you’re assigned an insolvency practitioner who oversees your financial matters and how you’re managing under the terms of the IVA.

While IVAs do offer you more financial freedom than an insolvency solution like bankruptcy, they’re much harder to get and come with a number of requirements of their own. 

In fact, you can’t get an IVA until the creditors that you owe at least 75% of your debts agree to the terms of the IVA.

Also, IVAs can hurt your credit score if you don’t know what you’re doing and you start missing payments. On the contrary, IVAs can help you reestablish financial security if you repay responsibly.

Regular repayments on IVAs can improve most people’s credit scores.

Lastly, in the UK, IVAs are usually active for a period of five or six years. You’re supposed to keep making regular payments towards your debts in that timeframe.

However, if it expires and you still owe some money, that amount is written off. So IVAs are a good choice if you’re looking to get your debts written off.

mortgage for iva  mortgage after iva

Can You Get a Mortgage After an IVA on Your Credit History?

If you’re still bound by an IVA, you won’t be able to get a loan without the consent of your insolvency practitioner.

Creditors will be looking at your credit report and your income to determine if you’re a reliable investment.

If a creditor believes that you have the assets and the financial security to pay them back, you can convince them to lend you even with an IVA.

It’s very important to pay back all your payments on time, so that your credit rating improves.

Your creditors may want to express their doubts about your ability to pay them back in the form of tighter terms and conditions and maybe even high interest rates.

While it is possible to get a mortgage after an IVA on your credit history, it is certainly not easy.

Mortgage loans are usually very flexible, so it’s probable that you’ll get one if you play your cards right.

Creditors will be looking at your consistency and whether you can keep up repayments.

Here’s some useful advice: if you’re making all your payments on time and can demonstrate that you have assets or a secure, unwavering regular income, creditors may be willing to loan you.

How Can You Avail a Mortgage after an IVA?

An IVA is listed on your credit report for a period of six years after it first becomes valid.

As long as it remains on your credit report, potential lenders may be put off by its presence. If your IVA is relatively new, it’ll have a much larger impact than if you’ve had it for four to five years.

If you’ve got an IVA listed on your credit report, it may become very difficult to apply for a mortgage as long as it’s valid.

IVA mortgages may be uncommon, but they’re not unprecedented.

You may come across lenders that refuse to lend someone if they’ve ever had an IVA listed on their credit report, regardless of whether it is valid or not.

On the flip side, you’ll find lenders that are willing to consider your application for a mortgage only after your IVA expires. Applying for a mortgage after your IVA expires can certainly improve your chances of getting one.

You’ll find that your chances will vary depending on how big a deposit you’re willing to pay. Some creditors may ask for a larger deposit than usual based on the fact that you’re under an IVA. You may have to pay a larger deposit because of your IVA.

If you’re lucky, you’ll come across lenders and creditors who will be willing to loan you even if your IVA is still active.

This does have slim chances of happening, but there are a few unwritten prerequisites that, if you meet, will help you increase your chances of getting a loan.

A lot of lenders may be willing to consider your mortgage application if your IVA is fully settled, at least three years old, and if you’ve actively improved your credit rating by making regular payments and engaging in other financially responsible activities.

Why Does an Individual Voluntary Arrangement Affect My Mortgage Application?

To put it very simply, it affects your mortgage application because to most lenders, it signals financial turbulence on your part.

That signifies to them that you may be a risky option to loan to, especially for loans as large as mortgages.

Creditors will be putting a lot of money towards mortgage loans, so they’ll want to scout for borrowers that will seem like safe options and will be able to pay them back.

IVAs do affect your credit file negatively.

SInce your credit history is typically the first thing creditors look into when they’re deciding if they should loan you or not, IVAs can be a turn-off for lenders.

They’ll understand that you may have a lot of trouble paying them back, especially if your insolvency solution is recent and if you’re shown irresponsible financial conduct.

Your possible options for getting mortgage loans after IVAs would be banks, a mortgage broker, or direct mortgage lending. You should also seek as much debt advice as possible. Good advice is often the key to a successful mortgage.

If you have a poor credit rating, you may want to check out creditors who give loans specifically to people with bad credit and are authorised and regulated by the financial conduct authority (FCA).

Key Financial Points Creditors Will Look at while Lending

This section will address the various financial points that potential lenders will look at when they’re deciding on whether to loan you or not.

Income To Expense Ratio

The first indicator they’ll look at is your income-to-expense ratio. The reason why is because this ratio is a prime indicator of how fiscally responsible you are.

If they find that your income is much larger compared to the amount you spend on your utilities and other expenses, you’ll find that they’ll be a lot more willing to loan you than if they find that you’re struggling with your finances.

The larger the income-to-expense ratio, the better it is for you.

Source of Income 

The second thing most creditors will be looking at is the source of your income.

They’ll want to assess how stable the source is and how much it can potentially vary over the coming years. 

If they find that all or most of your income comes from a shaky source, they obviously won’t be very willing to loan you. 

A mortgage loan requires a lot of long-term financial stability, and the best way to exhibit that is to show that you have multiple stable sources of income that won’t go away for a considerable period.

Wealth Statement

The final indicator mortgage lenders will be looking at when considering whether to give you a mortgage loan is your wealth statement.

Your wealth statement represents all your existing or recently acquired assets, any liabilities, and your expenditure across the entire year.

In that essence, your wealth statement tells creditors your actual income.

How Long Do IVAs Stay on Your Record?

In the UK, IVAs stay on your credit file for a period of six years from the date when they first become active.

If debt collectors are threatening to have you jailed if you don’t pay them, these are most likely empty threats and you shouldn’t be worried. You can ever pursue court action against them, since IVAs prohibit creditors and collectors from pursuing you for money.

Afterword

While applying for a mortgage after your IVA expires can certainly improve your chances of getting one, it can backfire if you don’t know what you’re doing and if you haven’t planned ahead.

I hope this guide helped you learn about your options if you’re facing a similar situation.

If you need more debt advice, feel free to reach out!

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