Getting a Mortgage After an Individual Voluntary Agreement (IVA)

If you’ve ever contacted StepChange or a debt relief company, they will likely have advised you to come to an agreement with your creditors to reduce payments and pay down existing debt.

This agreement is known as an Individual Voluntary Agreement or IVA.

In some cases, an IVA won’t be suitable and there will be other ways of managing your debt.

If your liabilities significantly exceed your assets and income, you might need to consider filing for bankruptcy.

IVAs have become increasingly common over the last two decades and many people who have them wonder whether they can still get a mortgage.

Getting a mortgage with an IVA can be tricky, but it is possible.

This guide outlines everything you need to know about getting a mortgage with an IVA and how to improve your chances of success.

Let’s explore this complex subject further.

What is an IVA?

An IVA is a formal agreement drawn up (normally by a third party) between you and your creditors.

It is used to manage debts and liabilities that have become unmanageable.

For example, if you fall behind on payments or receive defaults and County Court Judgements (CCJs).

By entering into an IVA, you’re showing your creditor you want to clear the debt (or as much as possible) and you are not ignoring it.

Debt problems without any agreed plan with a creditor will cause further action to be taken against you, which can result in CCJs and bailiffs being appointed to collect the money.

By entering into an IVA, you stop the debt recovery process from escalating further and have a fixed monthly payment to make toward your debt.

An IVA may not incorporate all debt and you might find debts like Council Tax are not included within your IVA.

Overall, an IVA is an agreement to help you make a manageable payment each month to your creditors and prevent further debt recovery action.

An IVA will impact your credit score and can have long-lasting effects on your ability to obtain credit, including mortgages.

Can I Get a Mortgage with an IVA?

The answer here is technically yes, you can get a mortgage with an IVA in place. It is a rare occurrence though, and you will need to use a specialist lender that accepts adverse-risk customers.

Even then, lenders that consider applicants with IVAs will heavily scrutinise your personal financial situation.

An IVA is a red flag that lenders are naturally cautious of.

IVAs are entered into because, at a point in your life, you were unable to repay your debts. Lenders will want to understand how you can now afford both a mortgage and your existing IVA payments.

The length of time you have had the IVA in place will also be a key factor.

As with bankruptcy, the longer the time since entering the agreement, the better your chances.

If you have taken out an IVA in the last month, a lender is unlikely to believe your financial circumstances have changed enough to support a mortgage alongside IVA repayments.

By comparison, an IVA that has been in place for five years may be viewed more favourably, as lenders may feel your financial position has stabilised.

Overall, if you are still in an IVA, your chances of securing a mortgage are very limited.

Once the IVA is settled, your chances of getting a mortgage improve significantly, subject to your wider financial situation.

Deposits and IVAs

One of the biggest hurdles to getting a mortgage with an IVA is saving a deposit.

Not only do you need to save a substantial amount of money while maintaining IVA payments, but most IVA agreements require any spare funds to be paid into the arrangement rather than saved.

Some people consider using a gifted deposit to work around the IVA, but this is unlikely to be successful due to the windfall clause included in most IVAs.

This clause means that any money received from a third party must be paid to your creditors and cannot be used as a mortgage deposit.

In most cases, the most practical option is to clear and settle the IVA before applying for a mortgage.

Can I Remortgage with an IVA?

It is technically possible to remortgage while an IVA is in place, in the same way that it is possible to obtain a mortgage with an IVA.

However, the chances of successfully remortgaging with an active IVA are slim.

Your chances are reduced even further if you have experienced any difficulties maintaining payments on your existing mortgage.

In most cases, the most practical option is to clear and settle the IVA before attempting to remortgage.

How Long Does an IVA Stay on My Credit File?

Contrary to popular belief, an IVA can remain on your credit file for a significant length of time.

Many online resources state that once six years have passed (the commonly referenced limitation period in the UK), the IVA will no longer appear on your credit file.

This is not always accurate for the following reasons:

• The time from when the IVA is taken out is recorded on your credit file. Most IVAs run for several years, often up to six.
• In rare cases, an IVA can be arranged to run for longer than six years.
• The six-year countdown for removal from your credit file usually begins only once the IVA has been settled.
• If there are any County Court Judgements (CCJs) not included within the IVA, these do not expire. Creditors can apply to renew a CCJ every six years.

As a result, the time between entering into an IVA and it no longer appearing on your credit record can be significantly longer than the commonly quoted six-year period.

In most cases, an IVA will remain visible on your credit profile for considerably more than six years.

What Happens After My IVA Settles?

Once your IVA has settled, the six-year countdown begins. After six years, the settled IVA will drop off your credit file.

If you have County Court Judgements (CCJs) included within the IVA, these will also fall within the same six-year period.

This is because an IVA is legally binding and overrides the original court ruling.

If you have an IVA where creditors with CCJs refused to accept the arrangement, those CCJs can remain on your credit file indefinitely.

Once a CCJ has exceeded the initial six-year period, the creditor must reapply for the judgement for it to remain enforceable.

Do I Have to Wait for My IVA to Settle Before Getting a Mortgage?

Ideally, yes. As discussed, it is possible to get a mortgage with an IVA in place, but these cases are rare.

Once your IVA has settled, a mortgage lender will no longer need to consider the legal clauses contained within the IVA when assessing your application.

IVA agreements often include restrictions that prevent lenders from approving a mortgage while the arrangement is active.

For example, the windfall clause included in most IVAs usually means that any money intended for a mortgage deposit must instead be paid to your creditors.

After your IVA has settled, lenders can assess your financial position from a more neutral standpoint.

Even if the IVA is still visible on your credit file, lenders will be able to see that you successfully honoured the agreement, which can significantly improve your overall risk profile.

How Can I Increase My Mortgage Chances After an IVA?

There are a number of ways to improve your chances of getting a mortgage after having an IVA.

Your chances will improve in different ways depending on where you are in the IVA process.

For example, if you have recently entered into an IVA, any positive changes you make will have little to no immediate impact, as not enough time will have passed.

Your first priority to improve your mortgage chances with an IVA is to continue meeting your IVA obligations on time and in full.

If, during the IVA period, you find you have additional money available, it is usually best to make overpayments or settle the IVA in full where possible.

Doing so allows the IVA to drop from your credit record sooner.

Once the IVA has been settled, you will need to actively manage any remaining debts and work on rebuilding your overall credit score.

Having an IVA on your record will have negatively impacted your score, and repairing it takes time, even after the IVA has been settled.

Credit Score Management

Mortgage lenders use credit reference agencies to assess your overall creditworthiness.

These agencies provide lenders with both your credit score and a detailed financial history.

Settling an IVA will usually result in a slight improvement to your credit score, but it is unlikely to return to the level it was before the debt issues arose.

This is because an IVA represents a significant period of financial difficulty and poor debt management, which remains reflected in your credit history.

That said, there are other steps you can take to improve and rebuild your credit profile.

Pay Off Any Other Debt Not Included in the IVA (Including CCJs)

These debts do not always need to be paid in full, and in some cases you can approach creditors with settlement offers.

While settling a debt does not improve your score as much as paying it in full, it can still have a positive impact.

This approach can be useful if you are unable to clear debts entirely but want to demonstrate improved financial responsibility.

Clear Your Overdrafts and Credit Cards

Regular overdraft usage can be problematic for mortgage applications and can weaken your credit profile.

Credit cards can also negatively affect affordability and lender confidence.

Review the interest rates on your cards and consider whether a 0% balance transfer card is available. This can reduce interest costs and allow you to pay down the balance more effectively.

Avoid Further Financial Commitments Where Possible

The more you extend yourself financially, the greater the risk that debt becomes unmanageable again.

Where possible, limit additional borrowing and new credit commitments.

Register on the Electoral Register

Some people with IVAs or credit issues avoid registering to vote, but doing so can improve your credit profile.

Being on the electoral register makes you easier to verify and reduces perceived risk for lenders.

Talk to a Mortgage Broker

Mortgages involving IVAs are complex and require specialist knowledge and access to the right lenders.

Speaking with a mortgage broker can help you understand what products may be available and the best steps to take next.

If you are not yet in an IVA, it is important to discuss your intention to get a mortgage with the company arranging it.

There may be alternative solutions that are more suitable than an IVA and could help you obtain a mortgage sooner.

For example, it may be possible to negotiate informal repayment agreements directly with creditors.

Many creditors will assess a statement of means to determine what you can realistically afford to pay.

If partial repayments can be agreed informally, this may be preferable to entering into a legally binding arrangement such as an IVA.

Boon Brokers is a whole-of-market mortgage, insurance, and equity release broker.

Boon Brokers has access to lenders that accept adverse credit applications, including some that will consider bankruptcy.

To discuss your debt or financial situation in relation to a mortgage, contact Boon Brokers today.