Mortgage after IVA? (It’s possible!)

In this brief guide, we are going to discuss getting a mortgage after an IVA. We will discuss how to ensure you are able to get a mortgage if you have just finished an IVA by taking the necessary steps before making a mortgage application.

Mortgage after IVA

Getting a mortgage after an IVA is certainly possible but because an IVA will be registered on your credit report it may be a good idea to check your credit report to gauge what your credit score and by default what your mortgage affordability is before you apply for a mortgage after an IVA.

If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.

Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.

Alternatively, you can also use credit score services such as Checkmyfile and clearscore to check your credit report.

What is an IVA?

An IVA (individual voluntary arrangement) is an arrangement which you can enter into with your creditors in a bid to settle your debts and also to avoid any further legal action such as bankruptcy, home repossession or a county court judgement which may be more damaging to your credit report and history but also cost you much more money.

With an IVA you will need a debt insolvency practitioner, of which there are many in the UK. 

Their job will be to create the agreement between you and your creditors to decide how much you should pay back each month and when the agreement will be settled in full and the account closed. In most cases, the debt insolvency partner is able to negotiate much-reduced payments for you, a freeze in interest rates and even a payment holiday so you can get your finances in order.  

Your creditors will also cease making any demands for more money from you.

You may also usually need to pay your monthly payment to the debt insolvency partner rather than the creditor. 

Before deciding how much you will pay the insolvency practitioner will assess your finances, inform you of what they feel is suitable as a monthly payment and then negotiate this with your creditors in a bid to agree on this amount.

When an IVA is approved, it is approved by the courts as a legally binding agreement between you and your creditors and then registered on the insolvency register.

At the end of the IVA term, the IVA is removed from the IVA register and if there are still any debts outstanding then these are written off by default and you no longer owe the creditors who were under the IVA.

How does an IVA affect your credit history & score?

Your credit history will be damaged and your credit score will likely go down if you have an active IVA on it. 

An IVA will usually last for five or six years and will be registered on your credit report for 6 years which means it may affect your ability to get credit in the future such as a mortgage. 

This means your credit score will usually begin to show better signs of improvement after the IVA has been removed from it.

Although the IVA will not be on your credit report after 6 years, a mortgage lender could still ask you if you have ever been subject to an IVA and this could affect their decision to lend to you.

Whilst you have an active IVA you may find it much harder to get any forms of credit such as car finance, credit cards or a mortgage.

What happens when an IVA has been settled? 

Once your IVA has been settled you will usually receive an IVA completion certificate from your insolvency practitioner which you can display to lenders to prove that your IVA has been settled. You should also check your credit report as indicated above to ensure that all credit accounts which you had under your IVA have now been marked as satisfied. The IVA itself will still remain on your credit file for a total of 6years since it was put on there.

Can you get a mortgage after an IVA?

Yes, you may be able to get a mortgage after an IVA but this will depend on your overall mortgage affordability hence how much mortgage deposit you have (the more mortgage deposit you have the easier it is for you to get a mortgage, usually), the type of property you are trying to buy (e.g Standard construction- easier to get a mortgage for usually or non-standard construction) and how long ago the IVA was recorded on your credit file if it is still recorded on your credit file.

If the IVA was more than 6 years ago and is no longer recorded on your credit file then you may find it much easier to get a mortgage after an IVA.

Once you have settled your IVA getting a mortgage will still be harder as long as the IVA is displayed on your credit file and you may find that most mortgage lenders will require higher mortgage deposits from you and will offer you higher mortgage rates.

What mortgage deposit will I need for a mortgage after an IVA?

The mortgage deposit you will need for a mortgage after an IVA will depend heavily on how long ago the IVA was concluded and if the IVA is still on your credit file. 

If the IVA is still on your credit file then you can expect mortgage lenders to have mortgage deposit requirements from 15% of the property price to 30% in some cases.

If the IVA is no longer on your credit file then you may be able to get mortgage deposit requirements of 5% to 15% as standard.

The reason why mortgage lender deposit requirements are so high is that they will view you as risky and will try to reduce this risk by offering you less of a mortgage hence you need a bigger mortgage deposit.

Can you get a mortgage after an IVA if you are self-employed?

If you are self-employed then you may indeed find it much harder to get a mortgage with an IVA as mortgage lenders already place so much scrutiny on the reliability of the income of self-employed borrowers who they are looking to lend to.

As a self-employed borrower with an IVA you will ideally need to have completed the IVA at least 12 months prior, you will need to have yourself employed accounts for at least 3 years although with the help of a bad credit mortgage broker you may be able to find self -employed mortgage lenders who will accept you with at least 12months worth of self-employed accounts.

The documents you may need as a self -employed mortgage borrower include:

Your P60 tax return

Your SA302 tax calculation form

Your company accounts if you work through a limited company

Other considerations a mortgage lender may take into account when offering a single person mortgage to a self-employed are:

The Trading style: are you drawing a salary from a company or do you have a claim over a share of retained profits. These could make a significant difference in how much you may be able to borrow.

Your experience: how long have you been self-employed and what your working history is.

Government schemes for a mortgage after an IVA

Not all government schemes are limited to people who do not have bad credit but the ones who mention that they will not accept people with bad credit do not give clear guidelines on what they term as “bad credit” except mentioning bankruptcy in some cases.

This is why it is very important to apply for all government schemes which you are eligible for as it may very well be possible that you are eligible for a government scheme which could boost your mortgage deposit or reduce the property price which you would have had to pay.

This could very well mean a mortgage after an IVA is possible for you.

The government schemes which you may be eligible for include:

• Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
• Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
• Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
• Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
• Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
• Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
• Right to buy- allows you to buy your home at a discount price.
• Preserved right to buy– same as above.
• Right to acquire- same as above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

You can also use a government scheme calculator to see which government schemes you may be eligible for.

Will a windfall clause limit your ability to get a mortgage?

No, a windfall clause will not necessarily limit your ability to get a mortgage based on how you attained the mortgage deposit funds or who pays it for you.

A windfall clause essentially stipulates that if you come into any money then you must notify your creditors and they will look to take up to 100% of this money to repay your debts. This could be an inheritance, winnings at the lottery etc.

In some cases where you need the money to live e.g insurance or redundancy payouts then the creditor will take this into consideration and should not collect this money.

What you can do to improve your chances of a mortgage after an IVA?

There are a few things you can do to ensure you improve your chances of being able to get a mortgage after an IVA.

These are mostly things which focus on good credit behaviour such as:

Credit building tips

You should focus on credit building to ensure your credit score is in the best shape possible, a few of the things you can do include:

Avoid making any late payments on your credit accounts

Avoid missing any payments on your credit account

Get on the electoral roll

Get a credit builder loan to show good credit behaviour

Get a credit builder card to show good credit behaviour

Keep your credit utilization below 30%

Avoid payday loans

Avoid getting rejected for any credit

Avoid applying for too much credit in a short space of time

If you rent report your rent to the credit bureaus.

Make sure you pay all your bills on time.

Keep your credit accounts open for as long as possible.

Types of mortgages

You could focus on trying to get guarantor mortgages, bad credit mortgages, family deposit mortgages or very low Loan to value mortgages which reduce the mortgage lenders risk.

Your debt accounts

The best way to ensure you will qualify for a mortgage after an IVA is to ensure that you dont currently have more debt accounts open or you do not currently have any car finance or loans outstanding.

Your mortgage deposit

As mentioned above, ensuring you have the biggest mortgage deposit you could find will likely increase the pool of mortgage lenders willing to lend to you.

IVA mortgage lenders

Below are some of the mortgage lenders which may provide IVA mortgages:

Accord Mortgages

Aldermore

Bank of China (UK)

Barclays*

Buckinghamshire BS

Cambridge BS

Darlington BS

Digital Mortgages by Atom Bank

Foundation Home Loans

Hanley Economic BS

Halifax*

Ipswich BS

Kensington

Kent Reliance

Marsden BS

Masthaven Bank

MBS Lending Ltd

Metro Bank

Pepper Money

Precise Mortgages

Royal Bank of Scotland*

Santander*

Skipton BS

The Mortgage Lender

Together

Vernon BS

Vida Homeloans

Virgin Money

Yorkshire BS

Mortgage brokers for IVA borrowers

You may want to consider using an independent mortgage broker to get a mortgage.

In this case, a bad credit mortgage broker may be the best option as these mortgage brokers have experience of dealing with borrowers who have bad credit and they may be able to find mortgage brokers who are willing to lend to you based on your circumstances.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application. Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer. Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

FAQs: Mortgage after IVA

In this brief guide, we discussed mortgage after IVA. If you have any questions or comments please let us know.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.