Contributed by Steve Seal, director of sales and marketing at Bluestone Mortgages.
Can you still get a mortgage if you had an IVA, DMP or undergone bankruptcy in the past?
At the start of this year, total individual insolvencies increased to their highest level in 7 years, with The Money Charity estimating a person being declared bankrupt every 4 minutes and 7 seconds.
If you are one of the many people who has experienced a significant financial event, like an IVA, bankruptcy or entering a DMP, you could be forgiven for being pessimistic about your chances of securing a mortgage. But, if you are able to demonstrate an improvement in your financial position, there are lenders that are happy to approve loans for customers in Debt Management Plans or who have been discharged from an IVA or bankruptcy. In this article, we’ll look at some of the options and considerations.
Debt Management Plans
A DMP is an agreement between an individual and their creditors to pay debts and is typically used when borrowers can only afford to pay less than their contractual repayments each month.
Unlike an IVA or bankruptcy where debt is written off, with a DMP you should ultimately repay the debts in full, but over a longer term. Some mortgage lenders, therefore, take the view that a borrower who has successfully maintained payments on a plan has demonstrated a determination to rehabilitate their finances and there are a number of options available to borrowers who are in an existing DMP.
In order to be accepted for a mortgage while you are in a DMP, a lender will want to see that you have successfully maintained payments on the plan and some lenders will ask for a written explanation about your credit problems to determine whether they were the result of a one-off life event on indicative of ongoing issues with managing your finances.
IVA and Bankruptcy
There are general similarities between an individual voluntary arrangement (IVA) and bankruptcy as both are legally-binding procedures that involve the repayment of creditors as far as is possible, with any remaining debt being written off at the end of the term and both remain on your credit file for six years. Some lenders will flat out decline an application from anyone if there is evidence of an IVA or bankruptcy on their credit record and high street lenders will generally require someone to have been discharged for at least six years before considering an application. But there are specialist lenders that understand an IVA or bankruptcy can be the result of a one-off life event and that it is possible for someone to get back on their financial feet within a shorter period of time, and there are competitive mortgages available for customers who have been recently discharged from a bankruptcy and those currently in an IVA. If you are looking for a mortgage but are concerned that a DMP, IVA or bankruptcy might stand in the way of your chances of being accepted, the first thing you should do is speak to a professional mortgage adviser. Many lenders that specialise in providing mortgages for customers with credit problems only distribute their products through intermediaries and so an adviser will have access to solutions that are not on offer to you directly. An adviser will also be able to analyse the criteria and terms of all of the deals available to you and select the most appropriate mortgage for our circumstances.