Anyone asking whether they can I get a mortgage with an IVA will be pleased to know that the answer is:
Yes… You can get a mortgage when you are in an IVA.
There are obvious difficulties that will lay ahead for anybody who wants to apply for a mortgage whilst they are in the process of an IVA, as the IVA will have an impact on their credit worthiness.
This in turn will have a negative impact on the choice of mortgage products the debtor will have, and which mortgage companies will be be prepared to offer the mortgage too.
Over the past months there has been a major shake up of the mortgage market, and some drastic reductions in the mortgage products available in the mainstream, however, there are still some specialist companies that provide mortgages for people who are in IVAs.
There will be some obvious differences between the normal ‘prime’ mortgage products available on the high street, and the ’sub-prime’ mortgages that are available for people in IVAs, and here are two of the main differences to be aware of:
- Interest rates. People who have a poor credit history will be seen as a greater risk than people with a good credit record, and the risk is reflected by an increase in the interest rate being charged. There is a higher risk attached to the mortgage, so there is a higher reward for the lender.
- Larger deposit. People who are considered a risk to the lender will be required to invest more of their own money in a property before a lender will accept the risk is worth taking. This can result in sizeable deposits being required to ensure the loan is offered.
This second point is why most people in an IVA will struggle to get any further.
After all, the general terms of an IVA insist that a debtor must inform their Insolvency Practitioner if and when they have available a large sums of money, including the deposit for a house, and therefore being in a position to place a large cash deposit down on property is unrealistic for someone who is in an IVA already.
However, there are circumstances where a deposit could be made available by a 3rd party, for instance a parent, a husband or a wife, where the 3rd party themselves are not in the IVA, but either want to buy a property with, or on behalf of the person in the IVA.
This is completely allowable, though documents should be drawn up to outline the terms under which the deposit has been provided. This is prudent practice, and will protect the deposit from the IVA creditors in the future.
Another barrier for people who are in IVAs getting a mortgage is down to affordability. Being in an IVA means living within an IVA budget, and having financial stability is the key to any budget, and having variable mortgage payments can prove to be difficult to manage.
This in turn can pose a very real threat to the IVA being able to continuing successfully, and underlines why taking out a mortgage whilst in an IVA could be considered one risk too many.
In principle though, there is no reason why a person in an IVA couldn’t get a mortgage, so long as they follow these simple points of advice..
- Make sure you can account for where the deposit came from.
- Draw up documents to protect the 3rd party investor.
- Make sure you are able to afford the repayments without putting stress on your IVA.
- Consider getting a fixed interest rate deal, which protects you from changes in affordability.
- Be aware of your creditors interest in any equity that may be generated.
As this last point shows, being in the position to buy a property can open another can of worms too, because there will be a possibility that your property will grow in value, which could lead to a growth in equity.
You would be well advised to find out how an IVA will affect the equity in your house, before you decide to go any further.
If you are thinking of applying for an IVA, call 0800 088 7503 now and speak to one of our IVA specialist advisers or leave your details at our quick contact page so that we can call you back.
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