Bad credit events and competitively priced, low deposit mortgage deals rarely go in hand in hand when you approach the high street lenders. Before the banking crisis and subsequent economic meltdown, the banks and building societies were very relaxed about their lending. This carefree attitude led to an increase in ‘sub-prime’ lending – extending credit to people with a poor credit history, often at inflated rates of interest. This was deemed to be one of the leading causes of the financial crash.
Understandably, the banks and building societies are now a lot more cautious about who they lend to, and how much they will offer. This has made it increasingly difficult to secure a competitively priced mortgage with IVA or any other adverse event on your credit file.
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What is an IVA?
An IVA – or Individual Voluntary Arrangement – is a formal, legally binding agreement between an individual and their creditors. It must be set up by an insolvency practitioner, who will be a qualified accountant or a solicitor, and approved by the court. It will also be recorded on the Insolvency Register.
It is the job of the insolvency practitioner to assess your finances and help you come up with a reasonable payment plan that you can realistically afford, and that your creditors are likely to accept. The insolvency practitioner will act as an intermediary and deal with your creditors on your behalf for the duration of the IVA – typically five years. They will invariably charge a fee for this service.
Once the proposal has been accepted by your creditors, all interest and charges will be frozen and creditors will be prohibited from demanding additional payments from you. You will make the agreed monthly payment to the insolvency practitioner, who will deduct their fee where applicable then forward the appropriate amount of money to each creditor.
When the period of time the IVA was set up for has passed, and provided you have kept up with the payments, any debt that was not paid off over the course of the arrangement should be written off. This means you no longer owe those creditors any money.
Finally, the record of the IVA will be removed from the Insolvency Register.
Can I get a mortgage with an IVA?
Finding a competitively priced mortgage with an IVA can pose some problems and, realistically, it is likely to cost you more than if your credit history had a clean bill of health. However, there is no reason why someone with an IVA cannot apply for a mortgage, and there are specialist lenders out there who will be able to help secure the most favourable deal possible.
The problems you will encounter when trying to secure an IVA mortgage are caused by the impact the IVA has on your credit rating. All mortgage lenders carry out credit checks to help them assess the risks involved in their lending decisions. Most mainstream and high street mortgage lenders will decline an application when they see an active IVA on your record. Fortunately, there are some specialist bad credit lenders that are prepared to offer mortgages to people in an IVA, although higher interest rates may apply and the deposit size for IVA borrowers is likely to be bigger.
So, there are lenders out there that will consider your application and, in theory, it is possible to obtain a mortgage agreement with an IVA. Bear in mind, however, that each application will be assessed on a case by case basis on its own individual merits.
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How long does an IVA last on credit record?
An IVA will show on your credit file typically for six years from the day it starts. This means that if your IVA has lasted for a period of five years, you will still have 12 months to go before it is removed from your record. Once the six years are up, and as long as you stuck to the IVA agreement without any missed payments or further defaults, your credit file should be clean.
The caveat, however, is that even faced with a clean credit record, lenders will generally ask whether any arrangements such as IVAs have ever been entered into. If the answer is yes (and you must be truthful about such things), they will likely still decline the application even though the IVA is no longer on either your record or the insolvency register.
Another issue to bear in mind is that a clean credit record is not necessarily a good credit record, as essentially you are starting from scratch. You have no payment history to show whether you are a good risk, and will now have to rebuild your credit rating to present an attractive proposition to lenders. There are a number of things you can do to repair your credit score, but your starting point should always be to access your credit report from Callcredit, Equifax and Experian, the three main credit reference agencies. You can do this by post or online.
Alternatively, just get in touch with our team today for advice on how to obtain a free copy of your report.
What to look for on your credit report
Credit reports only stretch back six years, so in theory, once your IVA has expired, your report should be clean. However, it is important you check all the details are correct. Make sure your name and address are registered accurately and any mistakes on your file are corrected. You should also check there is no adverse credit information after the starting date of your IVA.
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What next? Speak to Just Mortgage Brokers
If you are looking for a mortgage with IVA, we can endeavour to help. Our dedicated bad credit mortgage team works with a network of specialist lenders across the UK, and we know exactly where to turn to find the best deal to meet your particular circumstances. With unlimited access to the market, we offer exclusive rates not available on the high street. We also offer free, no obligation initial advice to help you consider your options.
To kick-start your search for a competitive bad credit mortgage with IVA, please get in touch with our specialist bad credit mortgage brokers today.