Do I Have to Declare an IVA on a Mortgage Application?
Navigate the complexities of applying for a mortgage with an Individual Voluntary Arrangement. Learn about disclosure requirements and how your financial history shapes lender decisions.
Individual Voluntary Arrangements (IVAs) are formal agreements between a person and their creditors to repay debts over an agreed period. When applying for a mortgage, a common concern arises about the need to disclose past or present IVAs. Transparency is a fundamental requirement in all financial applications, particularly those involving substantial credit. Understanding the implications of an IVA on a mortgage application is crucial for navigating this process successfully.
Understanding Individual Voluntary Arrangements
An Individual Voluntary Arrangement is a legally binding agreement established with creditors to manage and repay unsecured debts over a defined timeframe, typically five to six years. This arrangement is a formal insolvency procedure, designed to provide an alternative to bankruptcy. Upon its approval, an IVA is registered on a public record, making it a matter of public information.
The presence of an IVA significantly impacts an individual’s credit report and credit score. The IVA remains visible on a credit file for a period of six years from the date it commences, even if the arrangement is completed earlier. This entry on the credit file serves as an indicator to potential lenders, signaling a history of financial difficulty. Lenders access this information through routine credit checks during the application process.
The Obligation to Disclose
When applying for a mortgage, it is a requirement to declare any Individual Voluntary Arrangement. Mortgage applications are built on the principle of full financial transparency, demanding an accurate and complete disclosure of an applicant’s financial history. This includes all formal insolvency arrangements.
Failing to disclose an IVA on a mortgage application carries serious consequences. Non-disclosure can lead to the immediate rejection of the application, as lenders invariably discover such arrangements through routine credit checks. Intentionally withholding this information could be viewed as an attempt at mortgage fraud, a serious offense with legal ramifications. Such actions can significantly impair an individual’s ability to secure any financial products in the future, making full disclosure essential.
How IVAs Influence Mortgage Decisions
Lenders view Individual Voluntary Arrangements as an indication of past financial distress, which often translates into a higher perceived risk for mortgage lending. Their assessment process is comprehensive, considering several factors related to the IVA. For instance, the time elapsed since the IVA was formally satisfied and discharged holds substantial weight; generally, the longer the period, the better.
Lenders also evaluate whether the IVA was successfully completed as per the terms of the agreement. An IVA that was successfully concluded is often viewed more favorably than one that failed or was not fully adhered to. The applicant’s financial behavior since the IVA’s completion, including consistent payments on other credit accounts and responsible money management, is also closely scrutinized.
While many mainstream lenders may be hesitant to approve applications from individuals with a recent IVA, specialist lenders often have more flexible criteria. However, they may impose stricter terms such as higher interest rates or require a larger deposit, sometimes ranging from 20% to 30% of the property value.
Preparing Your Mortgage Application
Individuals with a history of an Individual Voluntary Arrangement should begin their mortgage application preparation by thoroughly reviewing their credit report. This step allows for an understanding of how the IVA is recorded and provides an opportunity to correct any inaccuracies. Ensuring the report accurately reflects the IVA’s completion, including the discharge date, is important.
Gathering all relevant documentation related to the IVA is another crucial step. This includes the Certificate of Completion, which formally confirms that the IVA has been satisfied. Presenting this document demonstrates that the agreement has been fulfilled and that the individual is no longer under the arrangement.
Demonstrating ongoing financial stability and responsible money management since the IVA’s completion can also strengthen an application. This can involve maintaining stable employment, building a positive payment history on any new credit, and accumulating a larger deposit, which can significantly reduce the loan-to-value (LTV) ratio and perceived risk. Seeking guidance from a mortgage broker who specializes in assisting applicants with adverse credit histories can provide tailored advice and access to suitable lending options.