Can I get a mortgage whilst on an IVA?

How can I get a mortgage whilst on an IVA?

Good question!

Arranging a mortgage is difficult enough when finances are tight, so it would seem impossible to be able to arrange a mortgage when you are actually in an IVA, but it isn't.

Background Information

IVAs are formal debt repayment programmes. They offer people with personal debt problems an opportunity to come to a new arrangement with their creditors, with repayments that are based on affordability. The IVA is a legally binding agreement, which means it is sanctioned by the Court, and once an agreement has been reached, all parties are bound by its terms.

Once you are in an IVA, you will be required to live within your IVA budget, which is based around your personal circumstances and will include all your normal living expenses, such as your housing costs, food, clothes, household utility bills, transport costs and so on.

There are no rules that state you must stay in rented accommodation though, so assuming you are able to find a mortgage of a similar monthly cost as your rent payment, you ought to be able to switch.

Practical problems

However, there are some practical problems you will need to overcome first.

  • Deposit. You will need to find a deposit to put down on the property before a mortgage company will agree to offer you the mortgage and it is fair to assume the size of the deposit will reflect your credit risk to the mortgage company, so don't expect much less than a 50% deposit as a minimum.
  • Interest rates. In the same way that a mortgage lender assesses the size of the deposit required, so too will they assess the risk a person in an IVA possess and this risk will be reflected in the interest rates that the lender charges for the loan.

The 50% deposit issue can be a really difficult obstacle to overcome for most people, and therefore most people in IVAs looking to buy a property will get no further than this point.

However, some people are fortunate and have 3rd party money available.

This could be in the form of a parent offering the deposit on behalf of the purchaser, but it should be stressed, that if a third party is willing to offer the deposit, proper documentation, such as a 'Deed of Trust' should be drawn up to protect their property investment from the creditors in the IVA.

Variable interest rates can also be difficult to maintain when trying to live within an IVA budget and can lead to payment problems. One way to overcome this issue is 'fixing' your rate to the lowest possible level is a good tip for someone in an IVA to follow.

Be prepared to discuss your ideas with your Insolvency Practitioner, they will be able to advise you of the pros and cons of getting a mortgage whilst in an IVA.

Also be aware that should you succeed in getting a mortgage when in an IVA, your creditors will have a more than a passing interest in any equity that may develop whilst the IVA is still active, and it's advisable to research exactly how an IVA will affect the equity in your home before you start the process.