Can You Get a Mortgage With an IVA?
Estimated reading time 6 minutes
For some, trying to get on the property ladder is significantly harder than normal due to previous poor money management. Trying to get a mortgage with an IVA, for example, is extremely hard and in most cases, is not possible. That being said, some specialist lenders will look to offer help but at a price.
In this blog, we dig deeper to find out more about securing a mortgage with an IVA and what your options might be when you can’t.
What is an IVA?
An IVA, also known as an Individual Voluntary Agreement, is a form of legal agreement between one person and those they are in debt with, their creditors.
An IVA puts the monthly debt payments into a more manageable payment plan. Rather than having to send payments to multiple creditors each month, one payment is made with portions of that payment being divided amongst each creditor. Set to last for approximately five years it helps eat away at the debt, hopefully clearing it. If after the agreed time, there is still some debt outstanding, it will be written off.
The IVA is set up by a debt specialist who then manages your case and makes sure that all creditors are happy with the payment plan. They will put strict rules in place that must be followed and drill down into how much money can be freed up each month after essential expenses to pay the debt. This means luxuries like a holiday, a new car, or a new house are largely out of the question. You may still be able to borrow some cash, but this is typically capped at just £500.
Will an IVA affect my credit score?
Yes, and it will remain on file for six years. Your credit score will drop, making borrowing extremely hard, meaning that mortgage lenders will be reluctant to offer you any money and even certain bank accounts may be out of reach.
Perhaps interestingly, having an IVA will also show lenders that you are willing to tackle your debt and are not totally ignoring it.
Along with your credit score, the record of your IVA will also be added to the Individual Insolvency Register for three months after the IVA ends. This is a database used by lenders, landlords and even employers to verify the details of your insolvency.
Can I get a mortgage with an IVA?
As you’ll have seen above, your credit score drops when on an IVA and your ability to borrow is severely restricted so getting a mortgage is highly unlikely. It’s possible to speak to the team looking after your IVA to see whether your lending options can be altered but to the extent of a mortgage isn’t something you should expect. Even if you are approaching the end of your IVA, a regular lender will still see the mortgage as a risk too far for them. As mentioned earlier though, certain lenders, created to help those with poor credit scores, might be willing to help. They will want proof of your current IVA including how much is still owed, how long it’s been in place for and whether you have kept up with the payments.
Should they be willing to lend for a mortgage, the interest rate will be high, much higher than with a standard lender as the risk to them is much higher than it would be with someone who has a better financial history.
So, I can get a mortgage after an IVA?
Yes and no. It depends on when you apply for the mortgage. If you apply within a month or so of making your last payment, it might be too soon. An IVA remains on file for six years in total so if you clear it within five years, you’ll still have twelve months with it remaining on your file. Lenders will see this and remain hesitant about lending.
Once your IVA has gone from your file though, and you’ve taken some time to improve your credit score, you could try applying for a mortgage. It’s advisable not to do this too soon as a credit score takes some time to build and is the best way for a lender to see you’ve got a handle on money management.
How do I improve my credit score?
If you’ve come out of your IVA and want to build your credit score to help you secure a mortgage, there are a few things you can do.
- Register to vote
- Check your credit report for errors
- Restrict how much credit you apply for
- Build a budget so you don’t rely on credit to settle bills
- Make payments for any credit or bills on time
- Don’t change addresses too often
If I have a mortgage already, will an IVA affect it?
An IVA is created to ensure you pay your debts but can still afford genuine expenses such as your home. This means that your IVA will consider your monthly mortgage payments, leaving you able to remain in your home whilst the IVA is in progress. Unfortunately, though, if your IVA hasn’t been cleared by the final year, you’ll be asked to release some equity to help pay the creditors any of what they are still owed.
If you want to remortgage though, you could find that your options are limited to the extent that you can only remortgage with the permission of those managing your IVA.
Can we get a joint mortgage if I have an IVA?
It comes as no surprise that those currently on an IVA may look at the possibility of a joint mortgage, especially if the partner has a better credit score. However, the restrictions an IVA places upon credit applications will still apply. The insolvency practitioner will need to grant permission for the applicant with the IVA to apply for a mortgage. There will also have to be an in-depth search for a lender who is willing to lend against someone with an IVA. This is despite a strong credit score from the other half of the application. Finally, proof of affordability comes into play and with an IVA in place already, lenders might see it as too risky. It would perhaps be best to wait until the IVA has concluded.
Should you have an IVA and are still finding finances a struggle, there are a host of debt charities that can offer free advice that could prove useful.
An alternative option that can often help quickly, is to speak to a cash house buyer like Sell House Fast. We can buy your house in as little as seven days. We don’t mind where your house is located, or even the condition it is in. We’ll still make you an offer, and if you accept, you can use the cash we provide you with to help clear your mortgage or other debts. You can then start working on building your credit score to secure a mortgage in the future. Get your free cash offer today to help you start the process.
