Bankruptcy and IVA mortgage guide

Mortgage Quote Line

0845 108 0505

• Mortgages
• Credit Cards
• Loans
• Investments
• Life Insurance
• Home Insurance
• Insurance

Bankruptcy and IVA mortgage guide

Many UK lenders offer products specifically tailored for those consumers with low credit ratings. Collectively, this group of products is referred to as sub prime mortgages, and also sometimes ‘credit repair’ or ‘non conforming’ mortgages.

Bad credit in any form can damage the chance of a borrower receiving the mortgage they want. For some, financial pressures escalate and they are faced with being bankrupt. But what does bankruptcy mean? How does being bankrupt affect your ability to get a mortgage? What is an IVA and how does this differ from bankruptcy? Understanding the sub prime mortgage market, even if you are financially secure, is a sensible precaution.

Being declared bankrupt or choosing to take an IVA does not necessarily prevent you from taking out or maintaining a mortgage loan. Many lenders will now consider a mortgage after bankruptcy or an IVA. In each individual situation, lenders of sub prime mortgages will impose specific criteria and conditions. For instance, some will require a bankruptcy to have been satisfied from some years. The sub prime mortgage market is competitive, but variety does exist between lenders.

Bankruptcy

Bankruptcy is an order made under the Insolvency Act of 1986 against an individual debtor. Bankruptcy signifies that he or she is unable to pay their debts, and must be considered bankrupt. Once bankrupt, the debtor is subject to certain terms and restrictions, until they are ‘discharged from bankruptcy’ which will usually happen after twelve months if creditors are satisfied.

Bankruptcy is rightly viewed as a major financial catastrophe for the individual involved. A person facing bankruptcy also faces serious implications. Bankrupts are barred from some jobs, need court permission for others, may lose possessions if an official receiver sells them, and face complications with credit for six years.

However, this does not preclude someone who has worked through bankruptcy from taking out a mortgage loan. In the past, a discharge qualifying period of up to seven years was considered normal by lenders, yet today this does not apply in most cases. Many lenders specialise in adverse credit, for those borrowers who have missed one repayment right through to those who have considerable arrears.

As in most cases where poor credit and further borrowing are involved, the lender (no matter how specialised they claim to be) will apply conditions and restrictions to any mortgage loan for a bankrupt person.

IVA (Individual Voluntary Arrangement)

An IVA, like bankruptcy, is a formal insolvency procedure and was introduced in the insolvency act of 1986. An IVA enables the debtor to pay off the whole of their debt or a part of it over a period of time. Rather than suffering the stigma of bankruptcy, the debtor works closely with their creditors to work out an affordable repayment plan.

In the UK, choosing to take an IVA does not necessarily preclude you from taking out a mortgage. If you have a deposit (that can sometimes be as little as 5 per cent), then there are plans that could suit. The adverse credit mortgage market in the UK is a large one. People working through an IVA are often in a position to retain their homes, but in many instances the creditors will impose conditions on how the equity is to be paid back. For instance, in many IVA cases, a clause will be built into the loan that stipulates that your house must be valued after a certain period of time and a percentage of the equity paid to the creditors.

The type of IVA mortgage and the rate that the borrower receives depends on how recently the IVA was completed and how much deposit is available. When it comes to poor credit, many brokers offer specialised quotes and advice

of IVA mortgage and the rate that the borrower receives depends on how recently the IVA was completed and how much deposit is available.

When it comes to poor credit, many brokers offer specialised quotes and advice.