What is an individual voluntary agreement (IVA)?
An individual voluntary agreement, or IVA, is a contract agreed between someone who is in debt and their lenders, in a bid to stave off bankruptcy.
If you cannot afford to pay off your debts in full, an IVA allows you to come to an agreement with the companies to which you owe money to freeze the interest you're paying and possibly reduce the amount you owe to an affordable level.
When you enter into an IVA, an 'insolvency practitioner' - a qualified debt specialist - will put a proposal to your creditors based on an affordable payment plan. This will usually last five or six years.
If your creditors agree to the proposal, you will make monthly payments over that period until your debt is settled.
If you've had an IVA in the past, this can put a dent in your mortgage chances, but there are still options, as we explain in this guide.
How does an IVA affect my credit history?
Lenders look at your credit history to make an assessment as to whether or not it should give you a loan. An active IVA, that you are currently repaying, will reduce your chances of getting credit until your IVA is settled.
The IVA will sit on your credit history for six years starting from the date the IVA commenced.
What happens when an IVA has been settled?
Your insolvency practitioner should inform you the debt is now paid and the term is now over.
You should get a 'completion certificate', which will prove that your IVA has been settled.
It's worth checking that your credit report has been updated correctly and any debts or red flags are now showing as satisfied.
How does my IVA affect my mortgage chances?
If you're trying to buy a home while you are still repaying an IVA, your mortgage chances are slim.
Your original creditors will ask how you can afford a home when you already owe cash, while prospective mortgage lenders will be unlikely to lend to someone with significant debts.
If you have served the terms of your IVA successfully, you are in a much better position.
Can I get a mortgage when my IVA is settled?
If you apply for a mortgage once your IVA is settled it certainly improves your chances.
Some lenders will refuse any applicant who’s ever had an IVA; others may only lend to you once the IVA has disappeared from your credit report after six years.
But there are a decent number of lenders willing to consider mortgage applicants if their IVA is at least three years old, fully settled and you have spent the time rebuilding your credit history and keeping up with all payments.
If you're in this situation, you could be asked to provide a larger mortgage deposit or may find that you are charged a higher mortgage interest rate compared to those who have a clean credit history.
If you've had debt problems in the past and want to get a mortgage, you may want to consider a mortgage broker who might be able to suggest lenders that will consider you.
What deposit will I need if I've had an IVA?
This will really depend on how long ago the IVA was settled. After six years, the IVA will have disappeared from your credit history, and you may be able to get a mortgage with a small deposit of 5% or 10%.
If the IVA was settled within the last three to four years, a lender may look for a higher deposit - anything between 15% and 25%.
If you want to take out a 95% loan-to-value mortgage, you're a riskier bet in the eyes of a mortgage lender.
When you're given such a large loan, there's a risk that the value of your property could fall below the size of the mortgage. This is known as negative equity.
If you fell short on your repayments and the lender had to repossess your home, it may not recover its loan in full in this scenario. Therefore, lenders are only willing to lend so much to those with a clean credit history.
So, if you've had an IVA, you're already seen as a 'risky' borrower because of your previous debt problems. Therefore, lenders will want you to provide a larger deposit to mitigate that risk.
Can a ‘windfall clause’ stop me getting a mortgage after an IVA?
A windfall clause is inserted into an IVA to ensure that, if you come into a sudden sum of money during the term of the IVA, this is given to the creditors.
Creditors will expect 100% of any windfall to be considered for the IVA, although by ‘considered’ it doesn’t mean necessarily all of the windfall will be taken away.
This windfall could include any surprise cash sum, regardless of how it arrived. It could be a lottery or cash prize win; inheritance; insurance payouts and redundancies.
Redundancies and insurance payouts are slightly different as you may be able to keep these if unemployment or illness mean you have nothing else to live on.
If, during the course of your IVA, you have gathered enough cash for a mortgage deposit, your creditor might ask where the money came from and whether it was the outcome of such a windfall or money you have kept hidden from lenders.
How can I improve my credit score after an IVA?
As more time passes since you have settled your IVA, your credit score will rise.
After six years, the IVA will disappear but your credit score may not have fully recovered.
As you haven't been able to borrow while you've had an IVA, your credit history will be quite thin, and there won't be much evidence of making payments for lenders to judge your creditworthiness.
There are steps you can take to boost your rating. Read our guide to how to improve your credit score.