For those seeking a solution out of significant problem debt, an IVA may be the ideal choice. This insolvency solution was created to aid those with debts of £7,000 or more but are unable to make the minimum monthly repayment.
When it comes to mortgages while completing an IVA, it’s important to remember that the insolvency solution has a significant impact on credit score which, in turn, can cause setbacks when it comes to remortgaging or setting up a new mortgage product altogether.
While completing an IVA, a mortgage you are currently paying off should not be affected by the arrangement but the payments you are making will be considered when putting together your proposal and the equity of your home could be affected in the long run. This is because at the end of your five year IVA agreement you may be asked to remortgage your home to release any equity. In most cases this is not possible for those completing an IVA. This is because your mortgage lender is unlikely to accept a remortgage application, therefore another year is added to your IVA to ensure you make a sufficient amount in repayments if the equity cannot be released.
It’s also worth noting that, when you take on an IVA, the terms of your proposal usually means you will voluntarily agree not to take on any further loans or credit while completing repayments. Therefore, to seek out credit even in the form of a mortgage product could be considered in breach of your agreement and your IVA could fail, leading to your creditors filing bankruptcy against you. Your income and expenditure is reviewed annually – see this guide from PayPlanthat goes into more detail about how an IVA works - so it’s imperative you do not do anything that could be considered a violation of the terms you have agreed with your creditors.
Once your IVA is complete, you should be able to start rebuilding your credit steadily, taking on small, sensible amounts of credit to grow your score again. This also means you will be able to remortgage or take on a new mortgage product, although bear in mind that if your score is still very low or the IVA is still on your credit report then only certain lenders will assist you and the interest rates may be very high. In this case, many people seek the services of a mortgage brokerwho can sift the market and find the best product for those who have just cleared their debts.
You will discover that obtaining a good mortgage will become easier once the IVA has been removed altogether from your credit report, but it is still important you only take on such a large debt if necessary. Seek alternative accommodation solutions while saving for a deposit for a new home and build up your credit score to the best it can be to ensure you obtain the best deal for you and your circumstances.