What exactly is a voluntary individual agreement (IVA)?
An individual voluntary agreement, or IVA, is a contract reached between a debtor and their creditors in order to avoid bankruptcy. If you are unable to pay off your debts in full, an IVA allows you to reach an agreement with the companies to freeze the interest you are paying and possibly reduce the amount you owe to an affordable level.
When you enter into an IVA, a ‘insolvency practitioner’ – a qualified debt specialist – will present your creditors with a proposal based on an affordable payment plan. This typically lasts five to six years. If your creditors accept the proposal, you will make monthly payments until your debt is paid off.
If you’ve had an IVA in the past, it can hurt your chances of getting a mortgage, but there are still options, as we explain in this guide.
What effect does an IVA have on my credit history?
It will have a long-term impact on your credit score. Your credit history includes all credit activity for the previous six years, as well as your debts and IVA.
Lenders consider your credit history when deciding whether or not to grant you a loan. An active IVA that is currently being repaid will reduce your chances of obtaining credit until your IVA is settled.
It is unlikely that you will be able to obtain credit cards, loans, or mortgages while repaying debts through an IVA. The IVA will appear on your credit report for six years, beginning on the date the IVA was initiated.
What happens after an IVA is resolved?
Your insolvency practitioner should notify you that the debt has been paid and the term has ended. You should obtain a ‘completion certificate,’ which will serve as proof that your IVA has been satisfied.
It’s worth double-checking that your credit report has been correctly updated and that any debts or red flags have been marked as satisfied.
How does my IVA affect my chances of getting a mortgage?
If you’re trying to buy a house while still paying off an IVA, your chances of getting a mortgage are slim.
Your original creditors will wonder how you can afford a home when you already owe money, and prospective mortgage lenders will be hesitant to lend to someone who has a lot of debt. If you have successfully completed the terms of your IVA, you are in a much better position.
Can I get a mortgage after my IVA is completed?
If you apply for a mortgage after your IVA has been resolved, you will undoubtedly improve your chances. Some lenders will refuse to lend to anyone who has ever had an IVA, while others may only lend to you after the IVA has been removed from your credit report after six years.
However, if your IVA is at least three years old, fully settled, and you have spent the time rebuilding your credit history and keeping up with all payments, there are a good number of lenders willing to consider mortgage applicants.
If you are in this situation, you may be required to provide a larger mortgage deposit or may be charged a higher mortgage interest rate than those with a clean credit history. If you’ve had debt problems in the past and want to get a mortgage, a mortgage broker may be able to recommend lenders who will consider you.
Is it necessary to declare an IVA on your mortgage application?
Many mortgage lenders will inquire about previous credit issues, such as having an IVA or declaring bankruptcy. Even if the IVA is no longer visible on your credit report, you must notify them if they specifically request it, as failing to do so may cause you further problems in the future. This doesn’t necessarily mean you won’t be able to get a mortgage – it’s just something to keep in mind when applying.
You want to apply for a mortgage now that your IVA has passed the statute of limitation of 6 years. You might think that it is okay not to declare an IVA after 6 years. But, it is your onus to provide such essential credit information to the lender without being demanded a credit check.
It is your responsibility to be open about your finances and credit history on your own without being told. Now, be it a DMP, an IVA, or bankruptcy, you should make everything transparent. If needed, call the StepChange debt charity contact number for free IVA debt advice.
Even if an IVA has passed its 6 years mark, you are legally obligated to disclose the IVA information to the lender. Because when the lender checks your account, they can see the IVA information. If you had withheld such crucial credit information when you applied for a mortgage with the lenders, they would consider you a dishonest person and fraud.
For a briefing, an individual voluntary arrangement (IVA) is a debt solution offered by an IVA service provider like StepChange UK. You can pay off most of your unsecured debts effectively within a stipulated time frame in this debt measure. An IVA is usually approved by the court and legally binds the parties involved.
Applying for a mortgage after 6 years of an IVA
People often wonder if they have to declare an IVA after 6 years when applying for a mortgage or other credit options. There is no sole answer for this as it depends on the individual’s personal and financial circumstances. While getting IVA advice is helpful, you should carefully consider some factors when applying for a new mortgage.
After passing the IVA’s limitation period of 6 years, planning to get a mortgage requires essential IVA advice. You have to find the right lender, or more importantly, a specialist lender for your mortgage application. Before the pandemic, getting a mortgage was more straightforward, even with an IVA or after an IVA. However, lenders now do strict credit checks due to existing financial problems. If you have or had an IVA, it might create an issue. As a result, obtaining a mortgage after 6 years of IVA with reasonable rates is tricky.
All in all, it is better to declare your IVA information even after 6 years. This might help you get a mortgage at lower rates. There is a chance of getting a mortgage at attractive rates with specialist lenders. You can take steps for change by working with StepChange UK to manage your finances and improve your credit score.
The primary challenge in getting a mortgage after the end of an IVAis that your credit profile gets affected. The IVA information shows up on your credit profile for about 6 years. And for a lender, your credit report is evidence of your financial capability. Credit checks enable the lender to determine the borrower’s viability for a suitable mortgage. Whether your IVA is active or not, it is a high-risk element on your credit file. This has a significant influence on the lender’s decision as to whether your mortgage application gets approved or rejected. However, if your IVA is successfully fulfilled, the effect would be a lesser margin.
High-street lenders are not a good option for applying for a mortgage when you have to declare an IVA. The best option is the specialist lender with whom you can get a mortgage at reasonable rates even after saying your IVA. A specialist lender generally offers mortgage products to borrowers in an IVA or who had an IVA in the past. No matter what they find on your credit check, they will likely approve your application for a mortgage at a high-interest rate and larger deposit.
Every borrower’s situation is different, so are their voluntary arrangements. That is why it is difficult to identify an optimal solution for where or when you should apply for a mortgage. If you are fortunate and your credit history is good enough with a successful IVA record after six years, the lender might provide you a mortgage at a great interest rate without a large deposit. However, it would be more helpful to declare your IVA when applying for one.
When to apply for a mortgage after an IVA
As your IVA ends, you can eventually take steps to improve your credit profile. Most lenders usually check only the immediate credit history. Hence, StepChange UK debt advisors often advise the borrowers to wait around for a bit before applying for a mortgage after 6 years of an IVA. Once your IVA is marked complete with the credit reference agencies, your likelihood of getting a mortgage increases. Furthermore, the record of an IVA is also removed after 6 years of its initiation.
Applying for a mortgage immediately after the end of your IVA is not a good idea. As you declare your IVA in the mortgage application, the lender will instantly think of you as a person with finance issues and offer your mortgage at high interest and high deposit. If not, they will directly reject your mortgage application. Since your IVA has recently ended, it will also severely affect your credit rating, which is a big turn-off for the lenders.
The lenders are bound to hold a credit check on your account for any finance-related applications. Whether you apply for a new property to the landlord, apply for additional credit, or apply for a mortgage to a specialist lender, you got to declare your IVA. Even if your IVA is of 6 years at this point, it is only right to declare it for transparency of information.
Can a ‘windfall clause’ prevent me from obtaining a mortgage following an IVA?
A windfall clause is inserted into an IVA to ensure that if you receive a large sum of money unexpectedly during the term of the IVA, it is distributed to the creditors. Creditors will expect 100 percent of any windfall to be considered for the IVA, though this does not necessarily mean that all of the windfall will be taken away.
This windfall could include any unexpected cash sum, no matter how it arrived. It could be the result of a lottery or cash prize win, an inheritance, insurance payouts, or redundancy. Redundancies and insurance payouts are slightly different in that you may be able to keep them if you are unable to work due to unemployment or illness.
How long can I get a mortgage after an IVA?
If you wait a few years after an IVA, it will be easier to get a mortgage. If you apply right away, you will face the usual issues: higher interest, higher deposits, and a higher chance of rejection.
That’s because your IVA and its impact on your credit history are still fresh in the lender’s mind.
It’s a safe bet that the longer you wait after an IVA to apply for a mortgage, the more likely you’ll be accepted.
A growing number of lenders are willing to consider mortgages for IVA holders as long as the IVA is at least three years old, the holder has made all payments on time, and they can see solid evidence that you’re rebuilding your credit score.
Do I have to declare an IVA in the future if I apply for a mortgage?
In a nutshell, yes. Mortgage applications are accompanied by a slew of questions, the answers to which brokers expect to be truthful. They will almost certainly ask you if you have ever had financial difficulties, including whether you have used a debt solution or declared bankruptcy.
It is critical that you tell the truth. If you lie on your application, you will be committing fraud and may face further consequences.
When you enter into an IVA, your credit rating suffers. When the lender performs a credit check, this effect is visible. It is proper to be truthful when dealing with financial and credit matters. As a last resort, get in touch with StepChange UK for vital IVA advice. There are many options for getting out of debt quickly, so in that case, the IVA is the best option for those looking for debt service in a short period of time, and the IVA typically lasts 5 to 6 years. There are numerous options for debt management. If the situation and conditions are met, IVA may be the best option. In this blog, we have attempted to address all of the frequently asked questions and circumstances.