How Does an IVA Work?

An IVA, or Individual Voluntary Arrangement, is a legally binding agreement between you and your creditors. It’s designed to help people in financial difficulty make manageable payments towards their total debt.

When you set up an IVA, you agree to pay a specific amount to an insolvency practitioner. These professionals can be either qualified accountants or solicitors, and they are authorised by the UK government to manage IVAs. 

The agreement lasts for a set period, usually around five years. During this time, your creditors can’t take further action against you.

Here are the steps in setting up an IVA:

Flowchart illustrating the steps to set up an IVA: Assessment, Proposal, Approval, Commencement, and Completion
  1. Assessment. An insolvency practitioner evaluates your financial situation to see if an IVA is suitable.
  2. Proposal. The practitioner develops a payment plan based on what you can afford.
  3. Approval. The proposal is sent to your creditors, who vote on whether to accept it.
  4. Commencement. If approved, the IVA starts. You make monthly payments to the practitioner, who distributes the money among your creditors.
  5. Completion. Once the agreed period ends, any remaining debt is usually written off. You’re then free from these particular debts.

Can I Get a Mortgage After an IVA?

Yes, you can. Getting a mortgage after completing an IVA can be a bit of a challenge, but it is not impossible. The bottom line lies in how lenders perceive your financial behaviour and credit risk.

After an IVA, most high-street lenders might view you as a high-risk borrower, which can influence their decision negatively. 

They tend to have stricter lending criteria and might decline mortgage applications from people who have recently completed an IVA. This is primarily because an IVA indicates that you’ve had difficulties managing your debt in the past.

That being said, specialist lenders exist who are more open to offering mortgages to individuals with an IVA history. 

These lenders consider other factors besides your past debt problems, like your current income, the stability of your employment, and your recent credit behaviour. But they may charge higher rates or require larger deposits to reduce risk.

It’s important to bear in mind that the longer it’s been since your IVA, the better your mortgage approval chances. As time passes, lenders see you as a lower credit risk and offer more options.

How Long Does an IVA Stay on My Credit File?

An IVA typically stays on your credit file for six years from the start date, even if you’ve paid it off sooner. During this time, it can make securing credit, including mortgages, more difficult.

When applying for a mortgage, honesty is crucial. If a lender asks about any past IVAs, it’s essential to disclose this information. 

Failure to do so can result in rejection if the lender later discovers it, as it raises doubts about your integrity and honesty.

Although an IVA on your credit file is a significant factor, lenders also consider several other aspects when assessing your mortgage application. 

They’ll look at your current income, employment stability, and how well you’ve managed other credit agreements since your IVA. A positive recent credit behaviour can boost your chances of getting a mortgage even with an IVA in your past.

Ensuring your credit file is accurate and up-to-date is also a crucial step towards improving your mortgage approval chances. If you’ve paid off your IVA and it’s still listed on your credit file, you should contact the credit reference agencies to update your status.

Infographic illustrating the 6-year impact of an IVA on your credit file and important considerations for mortgage applications

How Can You Prepare for a Mortgage Application After an IVA?

When you’re ready to apply for a mortgage after an IVA, planning ahead and being well-prepared will be your best friends.

Here are the steps you should consider:

Wait it Out

The longer you wait after an IVA before applying for a mortgage, the better your chances of approval. This waiting period allows you to demonstrate responsible credit behaviour.

Check Your Credit File

Ensure your IVA is marked as satisfied, and that there are no other mistakes on your credit file.

Remember to also review the list of your financial associations, as they could influence your mortgage application. You can get a copy of your credit file or check them in the following CRA links – Experian, Equifax, and TransUnion.

Rebuild Your Credit Score

Take small steps to rebuild your credit score. This could involve paying your bills on time, keeping your credit utilization low, and disputing any errors on your credit report.

Save for a Deposit

A larger deposit can make a lender more willing to offer a mortgage. It shows you’ve been able to save and reduce the lender’s risk.

Seek Advice

A good mortgage broker, especially one with experience in adverse credit mortgages, can provide valuable insight into which lenders are more likely to approve your application.

Flowchart illustrating the steps of preparing for a mortgage after an IVA: Wait it Out, Check Your Credit File, Rebuild Your Credit Score, Save for a Deposit, and Seek Advice.

Key Takeaways

  • A mortgage with an IVA is possible, despite past credit challenges. Your financial situation and choice of lender are important factors.
  • An IVA is a legal agreement between you and your creditors, managed by an insolvency practitioner and lasts for a set period, typically five years.
  • While having an IVA can make obtaining a mortgage more challenging, specialist lenders might consider other factors, such as your current income and recent credit behaviour.
  • Preparing for a mortgage application after an IVA involves waiting, checking your credit file, rebuilding your credit score, saving for a deposit, and seeking advice from a mortgage broker.

The Bottom Line

Working with a mortgage broker, especially when dealing with an IVA, brings many advantages. 

A good broker not only understands the complexities of the mortgage market but can also provide tailored advice, access to specialist lenders, and aid in building a robust application. This expertise can greatly increase your chances of a successful mortgage application after an IVA. 

If you’re considering a mortgage with an IVA, we encourage you to get in touch with us. Our dedicated team is ready to connect you with a skilled broker to guide you through every step.