Generally, an applicant with an IVA is considered as a risk by most lenders when applying for a mortgage in the UK because usually, the lenders check the credit report before confirming the mortgage application so due to an active IVA the credit score will get badly affected and it will result in a decrease in the credit score but it does not necessarily mean you can’t get a mortgage since there are specialized lenders who consider the mortgage application even with an IVA. These types of mortgage applications are termed ‘IVA Mortgages’.
What is an IVA?
An individual voluntary arrangement (IVA) is a legally binding agreement between the debtor and the creditor that helps the debtor to pay off the debts at an affordable rate over a fixed period. It gives protection from the creditors taking further actions against the debtor and some of the debts will be written off. When the payments are made, it is usually managed by an insolvency practitioner where he acts as the nominee to put together a proposal for the creditors. In the UK, Individual voluntary arrangement is a formal alternative for individuals who wish to avoid bankruptcy. IVA usually lasts for 5 years (60 months)
In an IVA a considerable amount of the unsecured debts could be written off but the amount will differ from person to person since the monthly payment for the arrangement is subjected to the monthly disposable income and it has an inverse relationship.
For example: if the disposable income increases, the affordability rises therefore the monthly payment to the arrangement increases. As a result, the total debt that could be written off will decrease.
The Criteria should meet by the applicant to be eligible to apply for an IVA
- Should have a minimum debt level of ÂŁ7,000
- Owe money to at least 2 creditors
- Should have a regular income either from employment, benefits, or pension
- Ability to pay a minimum of ÂŁ50 into the arrangement after all the essential living costs have been met.
How to apply for a mortgage with an IVA
When applying for a mortgage, there are many factors considered by the lenders before accepting the mortgage application and credit score and the credit history can be considered as some of the aspects considered by them but there are many other greatest aspects such as income, affordability, required loan to value(LTV), etc. considered by the lenders so a rejection of a mortgage application cannot be only due to an active IVA but it may result in a higher rate when getting a mortgage so it’s a disadvantage for the applicants. IVA can affect the credit score and credit history inversely but it’s less harmful to your mortgage chances than a full bankruptcy. Lenders might require a higher deposit for an IVA mortgage.
Who accepts IVA mortgages?
Since IVA mortgage applications are considered a risk by most lenders, specialized mortgage lenders are permitted to offer secured mortgage loans. They are able to take up a detailed assessment of the mortgage application and make an offer of a mortgage without strict criteria applied by standard lenders so therefore in here it is important to connect with a mortgage broker as they provide you with proper guidance to fulfill your expectations.
What is the deposit requirement?
Since an IVA mortgage is considered as a high-risk mortgage application or in other words it’s a bad credit mortgage, lenders might require relatively a higher rate, or they are likely to come with higher rates than the standard rates offered to regular applications which result in a reduction in the loan amount that can be borrowed. Generally, it’s around 20%-25% from the property value the client is willing to purchase.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the repayments on your mortgage.
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