IVAs and Mortgages

Understanding the Dynamics

Individual Voluntary Arrangements (IVAs) are debt solutions for individuals struggling with debt. You don’t need to be a homeowner to enter an IVA, but if you are, it’s important to understand the role an IVA plays in relation to your mortgage and your home.

Balancing Obligations

The main purpose of an IVA is to provide a structured pathway for individuals to repay their debts while safeguarding their assets and financial stability. The monthly repayment towards your IVA is based on disposable income, calculated after all your other bills and payments have been accounted for. For homeowners with mortgages, this means you can contribute to the IVA while maintaining regular mortgage payments to preserve homeownership.

Relief in Finances

Whilst an IVA is made up of your disposable income, it provides the opportunity to pause interest and charges on your debts, as well as get everything into one place. By calculating debt repayments based on your income and expenditure, IVAs can alleviate the financial strain, allowing you to know exactly what’s going out each month and meaning you can feel secure to make your mortgage payments. If you want to see an estimation of how much you might pay in an IVA, use our IVA calculator.

Navigating Mortgage Approval

A common concern that is raised to us by homeowners, is the prospect of future mortgage plans. An IVA is a legal arrangement, and lenders will see this on your credit file. Typically, lenders are unlikely to loan whilst you are on an IVA, so chances of obtaining a mortgage are low. However, IVAs stay on your credit report for 6 years after the start date before falling off. This means as long as you keep up with your IVA and its terms, there’s the potential for a mortgage following the completion of your plan.

Seeking Consent

Before an IVA begins, part of the approval process involves sending your IVA application to your creditors for approval. While some lenders may view IVAs as a proactive measure to address financial distress and may grant consent, it’s also possible for a debtor to vote against it if they have reasonable cause to do so. As long as 75% of creditors agree, your IVA will be granted. Without this vote, your IVA application will not be approved, and alternative options could be considered, such as a debt management plan.

Exploring Equity Release

If you’re a homeowner, your IVA may involve equity release towards the latter stages of the IVA. This means Insolvency Practitioners may assess the feasibility of releasing equity from the property to contribute to creditor repayments. This often involves remortgaging the property, necessitating approval from the mortgage lender. While equity release can help the path to debt freedom, not every homeowner struggling with debt would like to take this step so it is important to bear in mind.

Impact on Credit Score

Beyond the immediate financial implications, IVAs and mortgage repayments significantly influence your credit score. Throughout an IVA, individuals may experience a temporary dip in their credit score, reflecting the insolvency. However, successfully completing an IVA demonstrates resilience and financial responsibility, which can gradually rebuild one’s credit score over time, and in turn, may pave the way for future mortgage opportunities. Staying on top of your mortgage repayments is also crucial for helping keep your credit score as strong as it can be.

Conclusion: Seeking Guidance

When it comes to any debt solution, seeking professional guidance is always recommended. At Money Advice, we specialise in IVAs, and our assessors can provide further information if you want to know more about IVAs and mortgages.