IVA and Mortgages

IVA Mortgages are special ones, designed for people who intend to enter or have already an Individual Voluntary Arrangement as a way to consolidate their debt. Before an IVA Mortgage can be understood you must first understand the concept of an IVA, if you are familiar with the basic concepts you can skip the last part of this article.

Getting a Mortgage with an IVA

Trying to get a Mortgage after having been in an IVA or even currently having one is not difficult but it does come with a certain number of added consequences and costs that you will have to deal with. An Individual Voluntary Arrangement will affect your credit while you are contracted to your agreement; however the strain on your credit will remain for an additional six years after your debt has been cleared. This in effect makes an IVA similar to a bankruptcy making it difficult to obtain another Mortgage other than an IVA specific one.

A lender specialized in IVA Mortgages will look at your credit history and see when your IVA was satisfied, after knowing the facts behind your case they will provide you with their lending conditions. Lending conditions will vary from case to case depending on each individual’s circumstances.

Interest rates for an IVA Mortgage are higher than those of a standard Mortgage, because persons involve with an IVA are considered a high risk due to their current or previous debt. Even with the six-year stipulation on your credit and higher interest rates, obtaining a Mortgage will help you to restore your credit to a satisfactory rating allowing you to Remortgage in the future and in turn obtain a better interest rate.

If you are not familiar with the basic concepts of an IVA, please read the following paragraphs.

What is an IVA - Individual Voluntary Arrangement?

IVA stands for Individual Voluntary Arrangement. Citizens of the UK may enter into an Individual Voluntary Arrangement in effort to avoid Bankruptcy. IVA was created by Part VIII of the Insolvency Act of 1986 and is a formal agreement to pay back that is presented to a debtor’s creditors through an Insolvency Practitioner. The Individual Voluntary Arrangement is comprised of the claims of Creditors who are unsecured. The goal is to reduce a person’s debt within a five year time period. Arrangements can be made so that you may make monthly payments for the five years, at the end of which your debt will be cleared.

First and foremost it is important that you know that an Individual Voluntary Arrangement is voluntary on both parts. Because of this Creditors may decide that your debt is too high and therefore too risky for them to negotiate an arrangement.
If the Creditors are unwilling to negotiate with you, unfortunately your only remaining option is to file for bankruptcy. When an Individual Voluntary Arrangement is made between a person and their creditors it becomes a legally binding contract. Knowing this you must also be aware that an IVA will affect your credit rating, but it will not keep you from obtaining a Mortgage, a Bankruptcy on the other hand will prevent this.

How Does an it work?

  • Locate a licensed Insolvency Practitioner to act on your behalf, this can be achieved using a Debt Solution company or directly to an IP.
  • Present a court application for an “Interim Order” preventing Creditors from taking legal action against you.
  • Your Insolvency Practitioner will inform the courts of the details of your situation and the agreement you desire, also providing their professional opinion if this is a sound idea.
  • At this point if all are in agreement a meeting is arranged with the Creditors, only those creditors at the meeting are legally bound to the agreement.
  • The creditors will then vote to accept your arrangement; a vote of 75% in your favor must pass for the proposal to be accepted.
  • Finally your IP will supervise all the necessary arrangements to begin making payments to your creditors.

Pros and Cons of an Individual Voluntary Arrangement

  • Length: as discussed above an IVA will last for a minimum of five years and remain on your credit for an additional six years, whereas a Bankruptcy is removed after one year for eligible individuals and payments are typically less.
  • Credit: an IVA does not restrict debt collectors from getting credit, although they typically will. With a Bankruptcy a person can legally obtain credit to as much as £500.
  • Credit Rating: an IVA is commonly preferred over Bankruptcy because it is an effort to pay off your debt, however an IVA can potentially have a poor effect on your credit as with a Bankruptcy because when faced with such decisions one’s credit is already low.
  • Protection: IVA has a great advantage because Creditors are legally bound to the arrangements made between you, your Insolvency Practitioner and the Creditors. Even those who did not agree during the meeting cannot take action against you if the 75% vote was passed.

An IVA as Bankruptcy are serious matters. You have to understand all the consequences and costs before applying. We recommend you seek professional advice from certificated firms, IPs or registered charities.

Highlights:

IVA will not keep you from obtaining a Mortgage. Interest rates for an IVA Mortgage are higher. To apply you will need a specialized lender.

Post a comment