Mortgages
One of the primary concerns for homeowners, who are facing the prospects of entering into an IVA, will be related to their mortgage and the impact being in an IVA will have upon it.
Initially, everything will stay the same under the IVA and priority will be given to your mortgage repayments within your IVA's budget.
If you have any mortgage arrear before the IVA begins, you'll be allowed to reduce the initial payments into the IVA in order that you can bring your mortgage up-to-date.
Understanding IVA Mortgages
Even though it might be several months, or even years, into your IVA before you'll be forced to make any changes, making sure you have a clear understanding of how your mortgage will be affected is essential if you're going to avoid any nasty or unwelcome surprises.
Credit rating
As you know, being in an IVA will have a large impact on your credit rating and the information on your credit rating is recorded by the Credit Reference Agencies, CRAs.
All mortgage companies use the services of the main 3 CRAs to help them evaluate the risk any one client might pose to them.
Mortgage companies adapt their lending criteria to reflect the potential risk they perceive and, consequently, the mortgage products available to you will be less competitive than those found on the high street.
Loan to value ratios, LTVs
One method mortgage companies use to protect themselves from mortgage defaults is to decrease in the amount they are prepared to lend in the first place.
They do this by lowering the level of money they'll lend as a percentage of the overall value of the property. This ratio is called the Loan To Value, LTV ratio.
The result of lowering the size of the loan being made available through a mortgage is that it increases the size of the deposit needed to make up the difference between the loan amount and the purchase price.
So, the lower the credit rating of the borrower, the lower the LTV ratio will be and, therefore, the higher the size of your deposit.
Interest rates
Having an IVA on your credit file will also have an impact on the interest rates you'll be offered too and, for the same reason that the LTV ratio is lower, interest rates will be higher.
Mortgage lenders protect themselves by insisting on higher deposits through low LTV ratios and then increase the cost of the loan to reflect a higher profit for the higher perceived risk.
For more information on IVA mortgages read:
