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IVA : Can I Get A Mortgage When I Am In An IVA?
Yes, people in an IVA can take out a mortgage. However, there are few points to remember if you are considering taking out a mortgage whilst in an IVA and would like to avoid some of the pitfalls.
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If you prefer, you can contact one of our experienced advisers on 0800 088 7503 or visit myIVA-Adviser.com for specialist information on IVAs.
1. Credit worthiness
An obvious stumbling block for people trying to buy a property in an IVA is their credit worthiness. The very fact that someone is in an IVA means that there will be a reference to it on the credit register, which means that any potential lender will be aware of it.
This does not mean is that getting a mortgage is out of the question, but it is more likely that the interest rate applied may be slightly higher than high street lenders offer to so called "prime borrowers". The "sub prime" market as it is known is highly competitive and in reality the rates charged to clients with credit history problems are only slightly higher than the "prime market".
This is because a mortgage is a secured loan, and by definition the debt is secured against the asset, which can then be sold if payment problems arise, offering the lender an extra level of security.
2. Your deposit
It is reasonable to assume that people in an IVA don't have large levels of savings, and therefore putting down a deposit of some description could prove to be extremely difficult, not to mention trying to explain to your insolvency practitioner how you got the money when your IVA is subject to an annual supervision.
This does not mean that it is impossible. It may be that a family member or a friend is able to help by either lending or giving you the deposit. This is totally acceptable, but it can cause complications, and the person providing the deposit should consider protecting their money from creditors, through a "Deed of Trust", a point raised later.
3. The monthly repayments
Repaying a mortgage in an IVA is acceptable, as long as it does not alter (i.e. diminish) the regular monthly repayments into your IVA.
What this means is that if your IVA repayment is, let's say, £450 per month and your accommodation costs are currently £500 per month. It should be acceptable to creditors for you to purchase a property as long as it costs no more than the £500 per month you currently pay, and therefore does not reduce the amount you are able to offer towards your IVA. If however, the cost of the mortgage was £550 per month, then your ability to pay £450 per month into your IVA would be reduced by £50 per month and would probably not be acceptable to creditors.
4.Your Equity
The length of an IVA is usually five years, if during that time you buy a property, even if it's part way through, there is a strong chance that the property will increase in value. Creditors would want any added value, i.e. equity, to be considered at the end of the IVA, but only if the total debt was not repaid in full and there was still a shortfall owed.
In reference, to the point made earlier, and possible complication, if a relative or friend lent you the deposit to buy a property. The very fact that a deposit was paid builds equity into a property, added to the possible rise in value, the opportunities for creditors to extract extra funds through a re-mortgage are increased.
To offset some of this risk it may be possible to" ring fence" any deposit from a third party through a "Deed of Trust". This is a legal document drawn up to protect any money, provided by a third party, from the creditors.
The ratio to be considered when working out how much equity can be released in a re-mortgage at the end of an IVA, is usually 75% of the "loan to value" figure.
Cutting through the jargon what this means is that if a property is now valued at £100000, the maximum amount a lender would be prepared to lend against that property would usually be 75% i.e. £75000. If that property has an outstanding mortgage of £60000 the amount of releasable equity would be equivalent to the difference between the £60000 and £75000, a balance of £15000, which could then be used to offset any shortfall due to creditors at the end of the IVA.
To summarise, unless the need to buy a house whilst in an IVA is essential, it is probably better to continue living at home or in rented accommodation for the duration of the IVA.
Technically buying a property is possible, but practically, it may be better to clear all your debts through the IVA, and when it is completed take on the responsibility of a mortgage
If, after reading the points above, you still have unanswered questions call our specialist advisers on 0800 088 7503 or visit myIVA-Adviser.com
