Can you get a mortgage with an IVA, DMP or bankruptcy?

It’s possible but difficult. Your mortgage options will be limited after an Individual Voluntary Arrangement, debt management plan or bankruptcy.

Rebecca Goodman Published on 16 July 2021. Last updated on 17 July 2021.
Can you get a mortgage with an IVA, DMP or bankruptcy?

Bad credit mortgages are available for those with poor credit histories but they come with higher costs than standard deals.

If you want to buy a home but your credit history isn’t great, should you wait and try and boost your chances or go with a lender providing mortgages to those with bad credit?

The decision will be dependent upon your circumstances. If you do wait, you’re likely to get a more favourable mortgage deal. However, if you cannot wait, a bad credit mortgage or IVA mortgage could be an option.

If you have an open IVA – or individual voluntary arrangement as it’s known, a debt management plan (DMP), or a bankruptcy on your credit profile your chances of being approved for a mortgage are very slim. However, if they are satisfactorily closed, it doesn’t mean you can’t get one, it just means your options may be pretty limited.

» MORE: What to know about bad credit mortgages

How an IVA, DMP, or bankruptcy affects a mortgage

When you apply for a mortgage, the lender will look at your credit history to decide how much money to lend to you and at what cost. It will calculate the risk of you not being able to repay the debt and this will be reflected in the price it gives you.

Your credit history is a record of your borrowing over the past six years and will include details of any payments you’ve missed or if you have something like a county court judgment (CCJ) or have been declared bankrupt.

If you have an IVA, DMP or a bankruptcy on your credit history, this will be a warning sign to a lender and it could either mean it won’t lend to you, or that the rate is higher than a standard mortgage.

You may also be required to put down a bigger deposit before being accepted for a new mortgage.

Lenders set their own criteria for who they lend to, and the costs involved. For example, most lenders have a set timeframe from when an IVA has been paid off and the point at which you can apply for a mortgage.

» MORE: How to check your credit score

How to get a mortgage after an individual voluntary arrangement

An IVA is set up to repay debts, usually when they have become unaffordable. Affordable monthly repayments are agreed and after five or six years any remaining unsecured debts are written off.

If you are applying for a mortgage and you have an active IVA you’re paying off, you almost certainly won’t be accepted for a new loan. However, if you’ve paid off the IVA – especially if some time has passed - you’ll be in a better position to be accepted for a mortgage, but still move forward cautiously.

Some lenders won’t consider people who have previously had IVAs, although others will once the IVA has been paid off and a number of years have passed.

How to get a mortgage after a debt management plan

A debt management plan can be a good idea if you’re struggling to repay debts and many independent charities, such as StepChange, can organise one on your behalf. Repayments are based on your household budget and you only need to make one monthly repayment.

However, having a plan in place will affect your ability to get a mortgage.

This is because a DMP will show up on your credit record and, as you will be paying less towards your debts than the amount stated when you first borrowed the money, you will be regarded as a higher risk to future lenders.

Once the DMP is finished and your debts are paid off, your credit file will begin to improve, and it will very gradually become easier to get a mortgage, if your credit score slowly rises.

How to get a mortgage after bankruptcy

When you declare bankruptcy, this stays on your credit file for six years. So, if you apply for a mortgage during that time, the lender will find out about your previous financial situation.

Several specialist lenders will provide mortgages to those who have been bankrupt, but they are likely to be significantly more expensive than mainstream loans.

Do I have to declare an IVA on my mortgage application?

When you apply for a mortgage, it’s important to be open and transparent and to list anything that has happened financially including an IVA, DMP, or bankruptcy.

The lender will be able to see these on your credit file but if you withhold the information this can look like you’re trying to hide the information from them.

Instead, be honest and explain what has happened. The longer ago it happened, the better your chances of being approved for a mortgage as your credit score should have started to recover.

» MORE: What's required when applying for a mortgage

Image source: Getty Images

About the author:

Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more

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