Getting on the property ladder is a dream for many. However, for those with debts that are out of control and a poor credit rating, getting a mortgage might feel unattainable. An IVA could help you get on top of your debts to make your dream a reality. Let’s find out whether an IVA is right for you and whether you can get a mortgage with an IVA.
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What is an IVA?
IVA stands for individual voluntary arrangement. It is a legally binding agreement between you and your creditors to repay all of your debts by collecting and converting them into a single monthly payment.
IVAs work through insolvency practitioners (IP), who act as intermediaries between you and your creditors. The insolvency practitioner draws up a proposal indicating how you will repay your debts within five to six years.
Basically, you will be paying the IP a single monthly payment. The IP will then distribute the payment to your creditors based on how much the proposal indicates. The IP may also collect a fee for their services.
Is an IVA a good idea?
In a word, yes. However, it’s a good idea to speak to an IP to determine whether an IVA is right for you based on your unique circumstances before you proceed.
An IVA can help to show lenders that you are taking responsibility for your debts and working towards a better credit score.
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Can I get a mortgage with an IVA?
Yes, it’s possible. However, it can be challenging. Debts affect your credit score, especially if you have financial difficulties. Your credit score is one of the first things lenders consider when determining whether your mortgage application will be successful.
An IVA may help to get your debts under control, but it will show on your credit report. Most mortgage lenders view borrowers with IVAs as high risk, meaning it can be difficult for your mortgage application to succeed.
Additionally, even if you find a lender that will agree to give you a mortgage, the terms may not be favourable.
It might be best to consult a financial adviser or mortgage broker to find out the best options for your situation. It is also likely that you will need approval from your IP before you can take on any new debt.
Do I have to declare an IVA on my mortgage application?
It is recommended that you declare your IVA on your mortgage application. If you don’t, your mortgage lender will see it on your credit report anyway.
If you declaring your IVA on your mortgage application, it shows the mortgage lender that you are responsible. It may increase the chances of your mortgage application being successful. If not, the lender may rightly wonder why you chose not to disclose it and may ultimately consider you a higher risk.
Once your IVA has been cleared from your credit record, you no longer have to declare it when applying for credit.
How long does an IVA stay on my credit report?
An IVA stays on your credit record for as long as it is active, which is usually five to six years. Once you clear your debts, the IVA will be erased from your report, and you can start rebuilding your credit rating.
