An Individual Voluntary Agreement, IVAs are a way to resolve a history of poor credit without slipping into bankruptcy. Through an IVA, you work out a plan through an insolvency agent to pay your creditors and leave yourself debt free at the end.
An IVA is a legally binding agreement and will be present on your credit history for a full six years following its completion.
What is an IVA mortgage?
We use the term ‘IVA mortgage’ to refer to a mortgage that is being applied for while an IVA shows on your credit report.At The Mortgage Hut, we work with a range of specialised lenders who are willing to look at your individual circumstances and make a more flexible decision than some of the stringent criteria employed by general lenders.
Can I get a mortgage with an IVA?
Many factors are considered by mortgage lenders when looking at an application; your credit score and history are some of the first things looked at but that doesn’t mean that they are the most important.While many high street banks have a rigid set of rules regarding getting a mortgage after an IVA, we can look into helping you apply for a mortgage with a specialised provider who uses more personal underwriting to make their decision.
This means that simply having an IVA on your record is not a reason for immediate rejection, although it will be considered.
Will an IVA affect getting a mortgage?
While the IVA may not be a black and white factor, turning an application from successful to rejected, it will affect the terms of your mortgage.Mortgage deals are quite flexible, and lenders will want to adjust the specifics of your deal to present the right level of risk to reward for them. They'll also want to make sure that any mortgage product you are offered is one that you can afford and manage.
This means they will use variables such as offered interest rates and the size of your deposit to create an offer to suit you both.
How an IVA impacts your mortgage application
Your credit report is one factor in the mortgage providers assessment process that ultimately determines your loan application success. An IVA showing on your credit report does show that you have gone through a period of financial difficulty in the past, but it can also show that you are responsible and have made amends.In this way, an IVA is significantly less harmful to your mortgage chances than a full bankruptcy.
All mortgage lenders work by calculating the level of risk that you represent, and they reject applications where the reward for making the investment of a mortgage loan is not enough to outweigh the associated risk.
Understanding the risk you present with an IVA
Mortgage lenders will look at many aspects of your finances as part of your application, but the following are the greatest factors:Your credit history
With an IVA on your report, it is understandable that you would worry about your credit history - thankfully, your prospective lender may be more flexible that you thought possible.In the UK your credit history stretches back for six years, and time is a great ally when it comes to being judged on your credit score. If, following your IVA, your credit report is healthy, then it is largely a measure of time. Was your IVA within the last twelve months?
If so then it may be worth waiting a little longer to get a decent rate and mortgage deal. Was it three to four years ago? Surprisingly you may find that you are treated in a similar way to a customer with no IVA on their report at all.
In some circumstances it is even possible to secure a mortgage deal during an active IVA.
More important than your Individual Voluntary Arrangement is the behaviour that follows it. Missed payments, heavy use of other credit, multiple credit applications in a small space of time - these will have a small, but still significant, additional impact.
A CCJ or other serious problem will have a major impact on the terms of any mortgage deal you can obtain.
An IVA should signal a change in behaviour, and a mortgage lender is going to want to see this. Every month of good credit recording that follows the end of your IVA shows a commitment to good finances and lowers your risk to the lender.
Your mortgage lender is going to adjust the deal based on you having an IVA on your report; this is to mitigate some of their risk. Expect to be asked for a larger deposit, especially in the first few years following the IVA, and consider a willingness to agree to higher interest rates than those with a clear credit report would be offered.
Your income
Income has a direct correlation to your mortgage deal, determining the size of any available loan, as well as being a large factor in overall acceptance. It is obvious to say that the more income you have and the more stable your job role, the greater your chance for getting the mortgage you need, but those are not the only considerations.Following an IVA, you will be looking to a specialised lender who is willing to look on a case-by-case basis at your application, these lenders are also often more understanding and able to consider complex income streams. This includes:
- The self-employed
- Limited company directors
- Contractors
- Agency workers
- People with multiple income streams
- Those on low incomes
It is important to note, however, that every complication that you add to your mortgage increases the risk for the lender and may lead to more difficult terms before an application is approved.
However you obtain your income, you will need to be able to show a regular amount of money that can cover the mortgage repayments easily.
Your affordability
Affordability is a key part of any mortgage application. At its most basic, it can be thought of as disposable income; the amount of money you have left at the end of the month once all your bills and regular outgoings have been paid.A low affordability assessment is a large hinderance to a successful mortgage application, so it is very important that you cut back on any unnecessary expenditure in the months leading to your mortgage application.
Lenders will also apply a stress Test to your finances. This Test is a check to see if you could afford the mortgage in more difficult times; if the interest rate rises, for example. It is not enough to be able to squeeze the mortgage payments each month - you have to show that your finances can afford the mortgage should the situation change somewhat.
This is especially relevant in a mortgage after IVA. The lender is going to be keen to lower the risk by heavily stress testing your monthly accounts.
Loan to value (LTV) and the deposit
When taking out a mortgage, the size of the loan in ratio to the property value is a significant factor. This is called the LTV (loan-to-value) ratio and is expressed as a percentage. Most mortgage lenders are willing to consider loans up to 95% LTV for customers with clean credit histories - this size is going to drop when your IVA is factored in.LTV is the best way the lender has to mitigate risk. When you take out a mortgage, you use the property as a security on the loan and if you fail to repay, the mortgage lender has the right to repossess and sell the property to cover their losses.
When the LTV is low, the chance they can easily regain their losses is much higher, whereas a high LTV mortgage may present a difficulty for the mortgage company to recoup their investment.
The more recent your IVA is, the lower the LTV that will be offered. Directly following an IVA, you should expect to raise a maximum 75% IVA.
This will increase as time passes with a good credit report, and a couple of years following the end of your IVA, you will find offers up to 85%. After the third or fourth year of good credit, 90% LTV mortgages will be available from many lenders.
Any amount of property price that you cannot cover with your mortgage must be paid from your deposit, thus an 85% LTV mortgage would require a 15% deposit.
For example, to buy a property valued at £250,000 with an 85% LTV mortgage, you would need to provide a deposit of £37,500. Remember your home and any deposit will be lost if the mortgage lender is forced to repossess and sell your property.
While saving for a deposit may seem difficult, there are other ways to cover the amount especially if you are first-time buyer. See our guides on First Time Buyers and Gifted Deposits for more information.
IVA mortgages from specialised lenders
Specialised mortgage providers are properly authorised and regulated by the Financial Conduct Authority (FCA) to offer secured mortgage loans to customers with a poorer credit history.They are able to undertake a thorough assessment of your application and make an offer of a mortgage without having to match the stricter criteria employed by many standard lenders.
Using a mortgage broker, such as The Mortgage Hut, gives you access to a wide range of these specialised lenders, including many who will only offer products through an advisory service.
Fill in our contact form or give us a call to discuss your IVA with us, and find out what mortgage offers you can consider.
IVA mortgages - FAQ
How can I clean up my credit file after an IVA?It’s uplifting to remember that time can help with all problems when it comes to obtaining a mortgage with poor credit. With each month that passes, your IVA slips into being more distant history and your credit report can reflect a better level of money management than before.
The most important thing to remember is to keep your post-IVA credit record free of new problems. If your credit rating it clean, this shows an improvement in your financial standing and lowers the risk for the mortgage provider.
Five steps to improving your credit report
1 - Check your report regularly
In the UK, you are entitled to see your credit report from the three main credit reference agencies (CRAs)- these are Experian, TransUnion and Equifax. You can view your report for free from their websites or use a third party credit checking site that will amalgamate all three reports for a complete overview.
2 - Fix any mistakes
Mistakes do happen and your credit will suffer if you don’t contact the CRA to update them if you notice something you disagree with.
3 - Make sure you are registered on the electoral role
Being properly registered is a key component of presenting yourself well to future creditors, including any mortgage lender.
4 - Build up score through small credit facilities
Getting a credit-builder credit card or applying for a contract mobile phone are simple ways to build up a history of good repayments over time. Remember to keep on top of any repayments and don’t stretch your credit beyond your realistic means.
5 - Avoid unnecessary credit
Cut down any overdraft sizes, pay back loans and keep your credit card maximum limits to realistic levels. A large amount of unused credit can look bad and utilising huge swathes of credit is very damaging and risky.
Will I need to remortgage or sell my home for my IVA?
You will not be forced to sell your house for your IVA. However, if you have equity in your home then your IVA company will typically request that you attempt to remortgage your home in order to release some of that equity.Getting a remortgage will not be easy. As described above, obtaining a mortgage of any type (including a remortgage) while your credit history is poor requires specialist lenders and thorough assistance from a mortgage advisor or broker.
Obtaining a remortgage during an IVA will require a far larger degree of equity in the property than during a less turbulent period in your life. Unless you own a substantial amount of equity, therefore, it is often unrealistic for a remortgage application to be successful.
If you do wish to remortgage your home to help pay your debts, then speak to us at The Mortgage Hut for expert personal advice.
Can I sell my house after an IVA?
Once your IVA is complete, you are able to sell or remortgage your house with no involvement from the IVA company or any of your previous creditors.However, it is important that you consider the impact of the IVA in looking for a new mortgage. If you are planning to move to another home and would require a new mortgage (either a brand new mortgage, remortgage or ported mortgage) as part of the move, then you may find your credit situation prohibitive in getting a new mortgage deal.
Selling your existing property and moving on after your IVA can be problematic even if you are downsizing, as unless you are able to buy the new property in full from the equity in your current home, you will still need a new mortgage.
How does my IVA affect a joint application?
When considering a joint mortgage application, lenders will perform financial viability and affordability stress tests on the couple as a whole. This means that in most applications, the IVA will have an equal effect as it would for a sole application.If one of the partners has an IVA, it may be possible to look to a sole rather than joint application for a mortgage. Many lenders, however, insist that married couples or those in a civil partnership apply jointly.