An IVA, or an individual voluntary agreement, is a legally contracted agreement between the person who owes the debt and the creditor (individual/organisation that has loaned the money). This agreement will outline a way for the debt to be prepared over a set period of time. In most cases, if the amount that you owe exceeds £500, you could be enrolled on an IVA.
The idea is to create a repayment plan to pay off the debt. Usually, the plan will run over a 5-year period. An IVA will be set up by an insolvency practitioner, who will have specialist knowledge of debt repayment. They will liaise with the creditor on your behalf and make sure that you are meeting your payments on time.
At the end of the day, IVAs are put in place to help the debtor repay what they owe. They were introduced to help people repay their debt, not make them financially worse off. Our Specialist Mortgage Advisors in Birmingham can help answer your mortgage questions surrounding IVAs.
Whilst an IVA can reflect negatively on your credit rating, it is not impossible to get a mortgage with one in your name. Having an IVA shows the mortgage lender that you have previously failed to pay off a credit agreement. A mortgage is a huge credit commitment and lenders cannot afford for you to miss your repayments.
If you are looking at taking out a mortgage with an IVA, you will also need written approval from the creditors you originally borrowed money from. They may not agree to these terms and your application may be unsuccessful. If you were to receive a lump sum or gain an extra source of income, the creditor may want you to put it towards paying off your IVA.
Your insolvency practitioner will be able to speak with your creditors and try to come to an arrangement. You may need to pay a certain amount back or be enrolled for over a certain amount of time etc. before you are able to submit a mortgage application.
Some people may not receive an IVA, and this is purely down to affordability. If someone cannot afford to maintain their credit agreements, they may not be able to maintain their IVA repayments.
Before taking out an IVA, the insolvency practitioner checks that you have enough disposable income to cover your costs of living.
Although having a negative impact on your credit score, they may not stop you from getting a mortgage. An IVA offers an alternative to missing future payments or getting further into debt with the creditor. The more payments you miss, the more harm you are doing to your credit score. Also, the lower your credit score the more deposit you may have to put down.
When assessing a mortgage application, lenders look at your affordability and other credit agreements, therefore, they will be able to see the IVA on your file. Like defaults, they may even be able to why you have been put on an IVA and how much you owe the creditor. Depending on various factors, they may decline your application.
As a Mortgage Broker in Birmingham, we would recommend not applying for a mortgage if you’ve only just been put on an IVA. Your lender will not know whether you’re reliable yet or not either.
Once an IVA has paid off, because you have cleared the debt, you may be more likely to get accepted for a mortgage. This is not a guarantee though.
Your credit score will still likely be lower, which can impact the sort of deals that will be available. In Birmingham, we would advise that you seek Specialist Mortgage Advice in Birmingham before applying for any of these products. We are very experienced in this field and have advisors that may be able to help.
If you already have a mortgage, your remortgage options may always open up. Remember, credit can be built up over time and most of the time it’s best to pay off your IVA.