Can you get a mortgage after an IVA?

IVAs can have a significant impact on an individual’s credit history, and many people wonder whether it is possible to obtain a mortgage after entering into one. This article will explore the likelihood of securing a mortgage post-IVA and offer advice on how to improve your chances of approval.

What is an IVA?

An IVA, or Individual Voluntary Arrangement, is a formal, legally binding debt solution designed to help individuals in the United Kingdom who are struggling with unmanageable debt. It is an alternative to bankruptcy and involves reaching an agreement with creditors to pay back a portion of the debts owed over a fixed period, typically 5 to 6 years.

An insolvency practitioner (IP), who is a licensed professional, will work with the debtor to create a proposal that outlines how much they can realistically afford to pay back, based on their income, assets, and living expenses. The proposal is then presented to the creditors, and if at least 75% (by debt value) of the creditors agree, the IVA is approved and becomes legally binding on all parties.

During the IVA period, interest and charges on the debts are usually frozen, and creditors are not allowed to take legal action against the debtor, provided they comply with the terms of the arrangement. At the end of the IVA, any remaining debt is typically written off. However, it’s important to note that an IVA will have a significant impact on the debtor’s credit rating for six years from the start of the arrangement.

The impact of an IVA on your credit file

An IVA is recorded on your credit file for six years from the date it was first approved. This public record can make it difficult for individuals to obtain credit during and after the IVA term. Lenders often view an IVA as a high-risk factor, which may influence their decision to grant credit, including mortgages.

Can I get a mortgage after an IVA?

The short answer is yes, it is possible to get a mortgage after completing an IVA. However, the process will be more challenging and time-consuming. There are several factors that lenders will consider when evaluating your mortgage application:

Time since IVA completion: The further you are from the completion of your IVA, the more likely it is that lenders will consider your mortgage application. Most mainstream lenders require a minimum of two to four years to have passed since the IVA was satisfied. Some specialist lenders may consider applications sooner, but this usually comes with higher interest rates and stricter criteria.

Deposit: A larger deposit can help offset the risk a lender perceives when offering a mortgage to someone with a previous IVA. Typically, you should aim for at least a 20–25% deposit; however, the more you can provide, the better your chances of approval.

Credit score: While an IVA will impact your credit score, it’s essential to rebuild it after the IVA is satisfied. Ensure all your current financial obligations are met on time, avoid taking on additional debt, and use credit responsibly to demonstrate to lenders that you can manage your finances effectively.

Affordability: Lenders will assess your income and outgoings to determine whether you can afford the mortgage repayments. Ensuring your income is stable and that your financial situation has improved since the IVA will increase your chances of obtaining a mortgage.

Specialist lenders: If you’re struggling to secure a mortgage from mainstream lenders, consider specialist lenders who cater to individuals with adverse credit histories. Be aware that these lenders often charge higher interest rates and may have stricter lending criteria.

How long will an IVA stay on my credit file?

An IVA will stay on your credit file for six years from the start of the arrangement. This means that even after you have successfully completed the IVA, it will still be visible on your credit report for the remainder of the six-year period.

The IVA’s presence on your credit file can make it more difficult to obtain credit, such as loans or credit cards, during that time. However, once the six years have passed, the IVA should be removed from your credit file, and your credit score may begin to improve, provided you manage your finances responsibly going forward.

Tips for improving your chances of mortgage approval

Be patient: Give yourself time to rebuild your credit score and save for a larger deposit. This will improve your chances of securing a mortgage at a more favourable interest rate.

Check your credit report: Regularly review your credit report to ensure all information is accurate and up-to-date. Address any errors or discrepancies immediately.

Seek professional advice: Consulting with a mortgage adviser who specialises in lending to people with adverse credit can help you find a suitable lender and guide you through the application process.

Budget effectively: Create and stick to a budget, ensuring you can manage your finances effectively and demonstrate responsible financial behaviour to potential lenders.

Final thoughts

While obtaining a mortgage after an IVA can be challenging, it is not impossible. By working to rebuild your credit score, saving a larger deposit, and seeking the help of a mortgage broker, you can improve your chances of securing a mortgage in the future. Patience and persistence are key, as you may need to wait for the IVA to be removed from your credit file or adhere to specific waiting periods imposed by lenders.

Related articles:

Can you get a mortgage with poor credit?

How to Work with Specialist Lenders for Mortgages with an IVA

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