Yes, once an IVA has finished is it possible to get a mortgage, you’ll likely have many unanswered questions in regards to mortgages and the entire financial side of home buying.
You needn’t worry however, as we’re here to talk you through the things you need to know and take away some of the stress that comes with misunderstanding the property ladder and how to start climbing it.
An IVA can help you get out of debt but can make it tougher to get a mortgage in the future year. Find out how to get a mortgage after an IVA.
Having an IVA or being in one does not bar you from being an home owner with a mortgage but it it will probably affect the application process.
Getting a mortgage after an IVA
An individual voluntary arrangement (IVA) is a formal insolvency procedure that allows you to repay your debts over an extended period of time. If you have completed an IVA and are now looking to take out a mortgage, there are a few things you need to know. First, it’s important to check your credit report to make sure all information about your IVA is accurate.
If you find any errors, you can disputed them with the credit bureau. Second, you’ll need to have made all of your IVA payments on time for at least 12 months before most lenders will consider you for a mortgage.
And finally, even if you do qualify for a mortgage after an IVA, you’ll likely pay a higher interest rate than someone with no history of debt problems. But if you’re patient and careful, it is possible to get a mortgage after an IVA.
Can I remortgage to pay part of an IVA?
An IVA can last up to 60 months, and if you make all the agreed payments, any remaining debt is written off. One of the main advantages of an IVA is that it gives you protection from your creditors, who are not allowed to contact you or take any further action against you. However, an IVA can have a significant impact on your credit rating, making it difficult to borrow money in the future.
If you need to remortgage your home to raise extra funds, you may find it difficult to find a lender who is willing to give you a mortgage if you have an IVA in place. You may be able to remortgage with your current lender if they are willing to extend your mortgage term or if you have equity in your property. However, you should speak to an independent financial advisor before making any decisions about remortgaging.
How much money can I borrow for a mortgage?
Before you can start searching for your dream house, you’ll need to know exactly how much you’ll be able to borrow in order to set your price point at an appropriate level. There are many things that can factor into this, so we’ll walk you through everything you need to know about funding and buying your first home.
The amount you can borrow for a mortgage is dependant on numerous factors. The financial crisis in 2008 brought with it a lot of new regulations, this was to ensure a higher level of responsibility would be adhered to when it comes to lending.
The four key factors that will be considered are as follows:
- Your income – as well as the other applicants if you’re applying for a joint mortgage
- Deposit – the bigger your deposit, the more lenders are likely to loan to you
- Your credit score – if you have a good credit score, lenders will see you as more reliable and therefore be more likely to lend to you
- Affordability – the lender will need to know you comfortably afford the property you’re looking at purchasing
What effect does a deposit have on a mortgage?
The larger the deposit is that you put down on a property, the less you will need to borrow in order to achieve the full amount. If you only have a low deposit, lenders will set heightened interest rates to combat the perceived risk that lenders claim come with them.
Loan to value (LTV) is a term you should familiarise yourself with as it’ll be important throughout the mortgage proceedings. LTV is the amount you borrow against the property’s total price, after the deduction of your deposit payment.
More competitive deals will likely come your way much easier if you have a lower LTV. This is because the lower the LTV, the less you’ll ultimately need to borrow of the total property price.
If you can afford to put down a hefty deposit amount, you’ll be in even better luck. You’ll now mostly see a recommended 10% deposit, though you’ll need to be looking closer to the 25% margin to start seeing better mortgage rates and mortgage deals. If you’re fortunate enough to be able to put down a deposit of 40% or more you’ll start seeing the very best deals a lender can offer.
A deposit of 5% is likely the smallest option you’ll have available to you, though many people are now heading down this route to give them a jump start on the property ladder. The more you can delay getting a mortgage while you save up to put down a bigger deposit, the better off you’ll likely be in the long run.
What about the credit checks?
A credit check will be carried out by mortgage lenders when you’re applying for a mortgage. This will happen during the agreement in principle phase, which is a non-binding agreement that confirms they’ll be willing to lend you money under the relevant criteria of a mortgage deal. This is an essential part of the process because without the agreement you have no confirmation that you’ll receive the funds you need to purchase your new property.
Because of the checks that will be made, you’ll need to ensure you have a healthy credit score before you start applying for a mortgage. There are some helpful, proven ways of keeping your credit score in a positive state, so by following these guidelines you should be fine to apply for a mortgage when you need to.
Ways to keep your credit score healthy:
- Use a credit card little and often – by having and using a credit card you’ll be building up your credit score, so don’t go buying things you can’t afford to pay off.
- Keep your credit utilisation low – keeping this below 30% of your limit shows lenders you know how to use credit responsibly and sensibly.
- Fix any mistakes on credit reports – if there’s something bad on your credit report that isn’t right, get it fixed before lenders see it and disqualify you for any loans you may need in the future.
- Don’t make multiple credit applications around the same time – doing this can impact negatively on your credit score, so avoid at all costs.
- Use an eligibility checker before applying for credit – this way you won’t be rejected for credit when you thought you wouldn’t be and therefore won’t receive the negative impact of being so on your credit report.
- Start paying some bills in your name – this is a great way to build up a credit score, so get your phone bill in your name and start from there.
- Pay your bills on time – speaking of bills, it’ll only be useful in terms of your credit score if you’re ensuring that you pay them all on time.
Do I just take the maximum mortgage amount I’m offered?
When you’re purchasing you first home, the excitement of getting a nice place of your own may defer you from some of the important factors surrounding it. You shouldn’t solely consider how much you can borrow, but also how much you can afford to spend. You don’t want your whole life to revolve around paying for your house and completely lose your freedom to do other things with your cash.
It’s advised that you spend an absolute maximum limit of 50% of your income on mortgage repayments, though a lessened amount would make living much easier obviously. You don’t want to become ‘house poor’ and have very little disposable income to enjoy your life the way you’ll want to.
Keeping your monthly repayments closer to 30% of your salary will award you more freedom and generally more funds to use as you wish on things other than bills. This is also important because interest rates can rise up at any given moment, so ensuring you’ll have the extra cash to cover such events is an important consideration to make when applying for a mortgage.
If you’ll only be able to make your mortgage repayments at their current rate and won’t be able to afford them if they rise from, 4% – 6% for example, you’ll land yourself in a large amount of financial trouble and potentially even risk losing your house
Compare mortgage deals
Shop around and ensure that you’re choosing the right mortgage deal for your financial predicament, rather than simply accepting the first one that makes an offer to you.
It is possible to get a mortgage after an Individual Voluntary Agreement (IVA), but it may be more difficult compared to getting a mortgage before an IVA. An IVA is a formal agreement between an individual and their creditors to repay a portion of their debts over a period of time. It is a legally binding agreement and it will be recorded on the individual’s credit file for a period of six years. This can make it more difficult for an individual to get approved for a mortgage as lenders may be more cautious about extending credit to someone who has a history of debt.
An IVA will affect an individual’s credit score and credit history, which can make it harder to secure a mortgage. However, it’s not impossible, some lenders may be willing to offer a mortgage after an IVA, but the terms and conditions may be less favorable, such as higher interest rates or down payments. It’s always better to consult with a mortgage advisor or lender to understand the options and requirements before applying for a mortgage after an IVA.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.