15 Mar 2022

What are the implications of an IVA?

If you are struggling with debt repayments, you may have been told that and IVA is the right option for you. But this is rarely the case.

The negative impacts of an IVA are often glossed over during the heavy sales pitch of many IVA providers. Without understanding the implication of an IVA, people cannot truly decide if an IVA is right for them. Make sure you understand the implications of an IVA by reading on and learning more about your other options, even if you are already in an IVA.

Will an IVA affect getting a mortgage?

One of the major areas of your life that an IVA will affect is your financial good-standing. An IVA will make it very difficult to get a mortgage.

If you are already homeowner, you will struggle to re-mortgage once you are in an IVA.

Having an IVA will almost certainly mean that you are not eligible for the best mortgage offers and rates, at least for as long as you are in the IVA. If your current mortgage is fixed, an IVA will impact your ability to secure a new mortgage deal when your fix comes to an end. This may mean that your mortgage becomes a lot more expensive because of your IVA.

If you’re at all concerned about your mortgage or the cost of future borrowing, make sure that you speak to you mortgage provider before you enter an IVA. Only your lender will be able to give you complete and honest information about how your mortgage options are likely to be influenced by your IVA.

Your lender cannot take any action against you just because you speak to them about the consequences were you to become insolvent. They cannot take your home from you or change your mortgage deal just because you are looking at how an IVA will affect your mortgage.

However, if you feel unable to have this conversation, Galahad & Co. are happy to speak with you in the meantime. Please do not hesitate to contact us for free and expert support.

Be aware that your IVA company will almost certainly tell you not to speak with your mortgage advisor, this is so that the insolvency process is not delayed – but you absolutely should make sure you are having all the conversations you can before you agree to the IVA. You will have other options, and they will likely be better ones.

Can I get a first time buyer mortgage with an IVA?

If you do not already have a mortgage, you are very unlikely to be able to get one for 6 years after that IVA starts.

The insolvency will remain on your credit record for 6 years from the start date of the IVA. During this period, you will find it next to impossible to make a successful mortgage application. That will not change even if you complete the IVA successfully, terminate the IVA or even if you pay off all your debt in full.

Whilst you are still in the IVA you will also remain on the Insolvency Register and you will be insolvent. This may continue for more than the 6 years the IVA is on your credit report meaning that an IVA will stop you from getting a mortgage for many years.

Even if you are able to get a mortgage during the IVA, any deals you are offered, will be expensive. They will not be at the best rates available, and you will likely need to pay a higher deposit than most borrowers.

You may not have access to first-time buyer, or help to buy mortgage schemes once you have started an IVA.

If you are considering an IVA but also think that you will need a mortgage at any time in the future, we would strongly recommend that you take advice from your bank or an independent mortgage broker before you start an IVA.

Will an IVA mean I need to re-mortgage my home?

Sadly, IVAs are often sold to homeowners on the promise that they are the only way to make sure that your home is not sold from under you.

This is just not true. Even in bankruptcy, many homeowners will never be forced to sell their property. And you will certainly not be left homeless.

Even more importantly, most IVA proposals will include a clause which requires you to release equity from your property by re-mortgaging once you have been paying the IVA for several years. Don’t be fooled: once you are in the IVA it will become next to impossible to agree a new mortgage deal, even if you have significant equity in your property.

When you are not able to mortgage (because you are in the IVA), you may face a financial penalty. The length of time you will be in the IVA will almost certainly be extended by up to several years, and you may be asked to make bigger payments to the arrangement.

Even if you are able to re-mortgage while you are in the IVA, the amount that you will need to pay into the IVA is not limited.

You may think that you will have some cash left over after you have paid the required amount into the IVA, but this is sadly almost never the case. The supervisor will also take a percentage of this amount as their fees, often around 15% or 20%.

Does an IVA affect renting?

An IVA will make it very difficult to rent, even if you are already renting, or you sell your house to move into rented accommodation.

Private renting will always require a credit check. The landlords and their agents will very likely not want to rent to you if you cannot demonstrate that you have a good credit history.

If you are able to get a good reference from your current landlord, or demonstrate that you have kept up to date with your mortgage payments this may make it easier to rent while you are in an IVA, but it will very likely still be difficult to get a new rental agreement.

Many landlords may impose certain restrictions on you if you are trying to rent a home while you are in an IVA. This could include asking you to pay a portion of the rent up-front, higher monthly rent, a bigger deposit payment, or a review of the terms of the lease a short way into the agreement.

The demands of the IVA may also make it very difficult to keep up with your monthly rent. If you do not keep up with your rent payments, then you may be evicted by your landlord and lose your home.

You are likely to face fewer issues if you are a council tenant with an IVA, particularly if you need for accommodation is urgent or you have children or vulnerable people who need to be housed with you. You may still face higher rent payments or be asked to make bigger payments up front.

Is an IVA Right for me?

When you are struggling with high costs of lending, and tight household budgets we know it is very difficult to know where to turn for expert and impartial advice.

If you’re being told that an IVA is your only option, or if you’re already in an IVA and want to know what options you have, speak to us today. We will be happy to tell you more about other debt solutions which may be available to you such as debt management, debt relief, or our unique legal solution to escape debt for good.