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Focus on IVA’s and Bankruptcy

We have seen a surge in enquiries for those either in or considering entering into an IVA, and an increase in people who have come out of a previous bankruptcy and now wish to buy their own home. So thought we would focus today on how both IVA’s and Bankruptcy affect your chances of getting a mortgage.

What is an IVA?

An IVA is an agreement that you reach with all your lenders (usually through a third party) to pay off your debts normally over a 5 year period. You will come to an agreement on how much you can afford to pay off per month, and this amount will be split in an agreed manner across your debt.

What is Bankruptcy?

Bankruptcy is where you are not able to pay off your debts and a third party takes control of your assets in order to clear as much of the outstanding debt. It is a last resort where the value of your assets (the things you own) is greater than the debt you owe. A bankruptcy order lasts 1 year, however after discharge your credit report will be seriously affected for at least 6 years – affecting your ability to obtain any credit. In addition to this, you may find some lenders will not lend to a previous bankrupt regardless of how long in the past.

Can I get a mortgage if i’ve had an IVA or Previous Bankruptcy?

The answer is yes, however it becomes extremely difficult to select a lender to suit each individual circumstance, so it is paramount to get advice and use a broker to fully assess your particular situation.

In general, a Bankruptcy needs to be at least 3 years discharged before a lender will consider an application, with many lenders wanting 6 years since discharge. Thats not to say there are not options before that, but you will need a large deposit in order to progress (which if you have been in a bankruptcy is an unlikely scenario)

IVA’s (although always considered a ‘better’ option than bankruptcy), are equally difficult to obtain a mortgage with, particularly if you are already within an IVA. In general, the same rules apply to bankruptcy (a minimum of 3 years passed since completing the IVA), however there are some lenders that will accept an application if you are managing the payments well and you have a decent deposit. However, these kinds of applications will scrutinise whether you could better use your savings towards paying off the IVA sooner (as ultimately you will have said you cannot afford the payments, and if you have savings that could pay off certain debts, a lender will want to know why you didn’t consider this!)

The importance of the Credit Report and a Broker

Our first port of call to figure out the options for anyone with a bankruptcy or IVA to their name, is the credit report – This tells us what a lender will see when we apply to them and they run their credit searches. We recommend the Check My File report as it shows all three reference agencies. They have a free trial at CheckMyFile , which you can cancel within the free trial if you don’t want to pay the subscription charge. We often recommend it as a “marker in the sand” to give you the full picture at the start of your journey.

For a Bankruptcy, we also would need the dates the bankruptcy started, and the date/certificate of when it was discharged as these are key dates for lenders criteria.

For an IVA we will also need either the current statement showing the balances of the various debts, or a confirmation that the IVA has been completed and closed.

From those bits of information, we can search the lenders rules for lending to people with this kind of credit history.

Help is available

Before you consider any kind of action to move towards an IVA or even bankruptcy, its hugely important to understand the implications. Given that both of these actions can result in you being unable to obtain credit for potentially over 6 years it is crucial to get advice. Don’t be tempted by the companies that promise a way out – they often don’t have a client’s interest at heart. Step Change is a debt charity that can help you if you are struggling with your debt. https://www.stepchange.org/ is their website. Citizens Advice also have specific assistance for those in need of help Debt and money – Citizens Advice

A few examples

Mr and Mrs X were both made bankrupt 4 years ago, which was discharged just over 3 years ago due to the failing of a business. They had been gifted some deposit funds from their family to start over again but were not able to obtain a mortgage themselves. As their bankruptcies were discharged over 3 years ago, we were able to obtain them a mortgage with a specialist lender for a period of time aligned to the 6 full years between bankruptcy and the date their first mortgage initial product deal ran out and were able to move forward with a high street lender. As they were used to the higher payments from the initial lender, we were able to also reduce their mortgage term when we remortgaged them.

Couple Y were paying high rent to their landlord. Mr had some savings towards purchase of a property, but Miss had an active IVA. It was clear that a mortgage would be cheaper overall than renting but they were unable to get a mortgage due to the IVA. We managed to place a case with a lender who were happy to accept a sole application in Mr’s name, allowing an overall saving on their costs per month, allowing Miss to pay additional to get out of the IVA sooner, which in turn allowed her to join her partner on the mortgage sooner.

Get in Touch!

As always, its worth getting in touch even if it is just to discuss what options are available to you. Our method of working means that we can assess each case fully before we even approach lenders. This means getting all the documentation together in one place and fully assessing the case on real evidence that a lender will want to see. That means we can put together the pieces of the puzzle and direct you to a lender that is more likely to accept your application. We also chat to the lenders before any decision in principle to make sure they are comfortable with the case before we move forwards. And remember – if we don’t get you a mortgage, we don’t charge you a penny! Drop us a message here

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