Individual Voluntary Arrangements, commonly called IVAs, are bankruptcy avoidance programs in the United Kingdom. IVA agreements are not entirely dissimilar from credit counselling arrangements in the United States. Both programs help borrowers relieve themselves of some debt while avoiding the stigma and consequences of bankruptcy. However, if you have an IVA on your credit report and you need to get a mortgage, you'll face some challenges. It is possible, but you must be prepared to pay more than the average consumer.
Pull your credit report after you complete your IVA program but before you start researching lenders. You can either pay for an online copy (see Resources) or have a free copy sent to you via post. Also, pay for your credit score, as this will show you where you fall on the credit spectrum.
Research sub-prime lenders. This will be your only option following an IVA, unless at least seven years has passed since your IVA. Traditional lenders (banks, credit unions) cater only to well-qualified borrowers with sterling credit. Examples of sub-prime lenders include CitiFinancial UK, HSBC Finance Corporation and Norton Finance (see Resources).
Apply for mortgage loans at three or four sub-prime lenders. Provide the loan officers with your income documents. This helps the underwriters complete a thorough pre-approval.
Compare the mortgage offers side-by-side. Pay close attention to the fees and interest rate. These will be quite high. You must make sure that you can afford the exorbitant fees and interest before you accept any loan offer. Consider any sub-prime loan offer a temporary solution only---keeping it permanently will keep you financially strapped for years.
Review the terms of your IVA agreement. Most IVA counsellors mandate that no new credit be established while you are in the repayment period. This means that full repayment must be confirmed by your IVA counsellor prior to looking for a mortgage.
Tips and warnings
- Review the terms of your IVA agreement. Most IVA counsellors mandate that no new credit be established while you are in the repayment period. This means that full repayment must be confirmed by your IVA counsellor prior to looking for a mortgage.