An Individual Voluntary Arrangement takes up the vast majority of a person’s disposable income, so it’s no surprise that people with an IVA may wonder whether it’s possible for them to get a mortgage with their partner during an IVA. This is known as a joint mortgage.
In this article we’ll explore IVAs and joint mortgages more closely, including what an IVA is, how an IVA affects your credit history, and whether it’s possible to get a joint mortgage if your IVA is still active.
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What is an IVA?
An IVA is a formal debt solution available in England and Wales. It represents a legally binding agreement between an individual and their creditors to make a series of affordable monthly payments towards unsecured debt like credit card debt and council tax arrears.
When a person enters into an IVA, they are offered legal protection from their creditors and all of their unsecured debts are transformed into a single monthly payment that’s based on their income and expenditure.
The individual will make a monthly payment towards their debts for the length of their payment plan (typically five or six years), after which any debt not covered by those contributions will be written off by their creditors. It’s important to note that IVAs don’t cover secured debt like mortgages.
How will an IVA impact my ability to get a mortgage?
There are a number of ways in which an IVA makes your mortgage application more complicated. Below are some of the most obvious factors which will impact your chances.
Impact on credit file
All debt solutions affect your credit rating, the financial health score that is given to you based on your financial behaviour and your history of repaying what you owe.
The reason an IVA will affect your credit report is because using a debt solution gives an indication to lenders like banks and loan companies that you have struggled to repay debts in the past. The good news is the damage to your credit rating won’t last forever, and using an IVA will be of more benefit to your credit profile than defaulting on your debts.
As well as the impact in your credit file, the most obvious reason an IVA will affect your ability to get a mortgage is that, for as long as you are in an IVA, your financial contribution towards your debts will take up most of your disposable income.
When you apply for a mortgage, there are specific lender criteria you need to meet, and one of the most important is that you can afford your mortgage payments. With an active IVA, you are unlikely to be able to take on a new mortgage while keeping up with your IVA payments, which will hurt your chances with a conventional lender.
Acceptance from mortgage lenders
As mentioned previously, it can be a challenge for someone with an active IVA to have their mortgage application approved by a high street lender. This is why so many people with an IVA choose to research using a specialist mortgage lender.
Specialist mortgage lenders are companies that offer mortgages specifically targeted at people with a patchy credit history. The products they sell are often known as bad credit mortgages.
Specialist lenders may sound appealing with claims of ‘guaranteed acceptance’ but the mortgages they promote are sub-par, and usually involve abnormally high interest rates and monthly payments to compensate for poor credit.
What is a joint mortgage?
A joint mortgage is when you apply to borrow money to buy a house with a significant other, such as a spouse, partner, friend, or relative.
When you take out a joint mortgage, both individuals listed on the contract will then become responsible for the payment of the mortgage. Under the principle of joint and several liability, if one party refuses to pay, the lender can chase the other party for repayment of 100% of the debt.
Because both parties are responsible for a joint mortgage, mortgage brokers will examine both you and your partner’s credit reports during any joint mortgage application.
How we helped Paige
It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.
Paige , IVA Customer
Is it possible to get a joint mortgage with an active IVA?
Mortgage approval can be difficult for people with adverse credit, including those with active IVAs. For that reason, IVA customers might explore the possibility of a joint mortgage with a partner whose credit profile is in a better position.
While a partner with better credit can be beneficial, the individual with the IVA would still face the same challenges during the application for a joint mortgage, specifically;
- Getting permission from your Insolvency Practitioner
- Finding a mortgage broker who will approve a mortgage for someone with poor credit
- Proving your ability to pay the mortgage company while keeping up with your monthly IVA payments.
Can I get a joint mortgage after an IVA?
When it comes to applying for a mortgage after an IVA, the passing of time can be helpful. After all, an IVA will only remain on your credit record for six years from the beginning of your arrangement.
Once that six years has passed, any mortgage application will become easier, including a joint mortgage application. This is because your unsecured debt will be taken care of, and you will no longer have a debt solution listed on your credit report.
Will I be able to get a mortgage without declaring an old IVA?
Whether you’re interested in a joint mortgage or are making a standard mortgage application with a high street lenders, it’s common for people to wonder whether they have to declare an old IVA during the application process.
In short, it’s highly likely that you will have to declare an old IVA, even if six years has passed since your IVA was completed, and the debt solution has now been removed from your credit history.
The reason for this is simple. Most mortgage lenders oversee an extensive application process where they will want to know as much as possible about your financial history, including any previous credit issues.
Declaring your IVA doesn’t mean your application won’t be successful, but the mortgage providers may look for more security from you, in the form of higher interest rates or a larger deposit.
Where can I get more information on IVAs and mortgages?
Debt solutions like IVAs are designed to help you deal with the unmanageable debt that is weighing you down financially, so that you can move on with your financial life.
One of the biggest steps for people after successfully completing an IVA is taking on a mortgage – something that’s entirely possible, even though it can seem a million miles away when you’re dealing with debts you can’t afford.
If you’re struggling with debt, or in an IVA and want to know more about how it might impact your mortgage, get reliable debt advice from Your Debt Expert today.