Getting a mortgage with an IVA

Whilst getting a mortgage during an IVA is perfectly acceptable, there are factors that you should be aware of before you commit yourself.

Taking on the financial commitment of a mortgage is always a big decision to take, but doing so whilst in an IVA adds a few extra elements which need to be considered.

Practical Obstacles

Here are a few of the practical obstacles that you'll need to overcome before you should commit yourself to such a large undertaking.

IVA Affordability

You'll need to bear in mind the impact that the cost of the new mortgage will have on your ability to afford your IVA contributions.

If the cost of the mortgage is greater than the cost of your current living arrangement, then there will be a detrimental impact on your ability to maintain your IVA payments at their agreed level.

The affordability of the IVA could be under further pressure if there's a rise in the household utility bills, or council tax.

It would be a very worthwhile exercise to undertake a thorough assessment of the new costs associated with the new property, just to make sure there are no nasty surprises in store.

Even if you don't believe the new costs themselves pose a problem to the affordability of your IVA, it would be prudent to have a chat with your IP beforehand, just to be on the safe side.

Introduction of equity

Obtaining an asset such as a property, even through a mortgage, will expose you to prospects of acquiring equity during the term of your IVA.

Any rise in the value of your new home could create what's known as an 'acquired asset', a share of which your creditors could become entitled to under the terms of your IVA.

So, again, talk to your IP to ensure you full understand the implications that might be brought into play as a result of taking ownership of an asset during the term of your IVA.

Raising the deposit

Since the credit crunch of 2008 the number of mortgage lenders providing mortgages for people in IVAs has fallen dramatically and they have tightened up their lending criteria as their way of protecting themselves against the risks of lending money to people with bad credit.

Because of the damage your IVA has done to your credit rating, any mortgage lender prepared to offer you a mortgage will insist on a large financial deposit as part of their offer.

Currently, (April 2013), the minimum deposit for a mortgage for people in an uncompleted IVA stands at 50% of the property value.

Not only does this create the practical difficulty of having to raise such a lot of money, it will immediately create 50% equity in the property.

If the deposit is being generated by the IVA candidate, then the IP might well have some questions as to where they managed to generate such funds whilst in their IVA.

If the deposit is being provided by a 3rd party such as a parent, or someone else who's not involved in the IVA, then steps will need to be taken to protect their investment from the IVA creditors. This can be done through a 'Deed of Trust' and advice should be sought from a solicitor on how this can be achieved before the investment is made.

Summary

In practical terms getting a mortgage whilst in an IVA may not be the best way forward and could put your IVA in jeopardy, so seek advice from your IP before you commit yourself.

Follow this link if you would like to read more on mortgages for IVAs.

In accordance with the Financial Conduct Authority's guidance, please follow this link if you would like to read a free guide about In Debt - Dealing with your creditors
To find out more about managing your money and getting free debt advice, visit Money Advice Service , an independent service set up to help people manage their money.

'www.my-iva-adviser.co.uk' is a trading styles of IVAorg CIC. Company Number: 08560305 | Data protection registered ZA033231
IVAorg CIC is authorised and regulated by the Financial Conduct Authority (FCA) | Firm Reference Number (FRN) 684439