IVA mortgages and remortgages

Credit File Information
When you make an application for a loan or a mortgage through a mortgage broker you may be credit checked. As well as looking at your financial information and bank statements they will also check your credit report with one of the major credit reference agencies, Experian or Equifax.

What is a Credit Report?
Experian and Equifax are the leading credit reference agencies in the UK. Credit reference agencies maintain information about you and your credit history. This information is gathered on an ongoing basis from many sources that have extended you credit. Lenders and broker/packages, employers, landlords, and other service providers buy that information in the form of a credit report to help them decide whether to approve your application for a loan, credit card, job, or housing, or to offer you a product or service at a particular rate. Because your credit file changes constantly, it’s important that you review your information regularly to check its accuracy.

The bulk of your credit report consists of details about credit accounts that were opened in your name or that list you as an authorised user (such as a spouse’s credit card). Account details, which are supplied by creditors with which you have an account, include the date the account was opened, the credit limit or amount of the loan, the payment terms, the balance, and a history that shows whether or not you’ve paid the account on time. Closed or inactive accounts, depending on the manner in which they were paid, stay on your report for up to 6 years from the date of their last activity. Credit reference agencies record an inquiry whenever your credit report is shown to another party, such as a lender, service provider, landlord, or insurer. Inquiries remain on your credit report for up to two years.

Public records.
Matters of public record obtained from government sources such as courts of law including County Court Judgments and bankruptcies may appear on your credit report. Most public record information stays on your credit report for 6 years.

Who Can Look at Your Credit Report?
Anyone with what is considered a permissible purpose can look at your report. These companies, groups, and individuals include:
Potential lenders

• Landlords
• Insurance companies
• Employers and potential employers (usually only with your written consent)
• Companies you allow to monitor your account for signs of identity theft
• Any government agency (although they may be allowed to view only certain portions)
• Someone who uses your credit report to provide a product or service you have requested
• Someone that has your written authorisation to obtain your credit report

Checking Your Credit Report
Many different lenders and other businesses to make decisions about you use your credit report. When it comes to your credit report, it is what you do not know that can hurt you. Credit card companies, mortgage loan companies, car loan and insurance companies, even landlords and employers check credit reports to find out about your credit past. The reason? They assume if you were responsible in the past, you will most likely be responsible in the future. When it’s time to consider any sort of financial move a new home or car, a new credit card, a new auto insurance policy, even a new job it is time to check your report.

You have the right under the Data Protection Act 1998 to obtain your credit file by post at a cost of £2.

You can do this by completing the forms below and sending them to the credit reference agencies :

Experian Credit File Application Form (PDF)
Consumer Help Service
Experian Ltd
PO Box 8000
Nottingham
NG80 7WF

Equifax Credit File Application Form (PDF)
Equifax Credit File Advice Centre
P.O. Box 1140
Bradford
BD1 5US

You can check your file online using the following sites:

Experian

Equifax

All of the above agencies offer a service whereby they will charge you a fee of up to £15 for viewing your file an unlimited number of times in a 3 month period. This will give you the ability to query any entries you do not agree with and check that they have been removed or amended.When you get your report, review it carefully. If you see problems on your report, such as an unpaid bill that you simply forgot about, act right away to resolve the debt. Then ask the business to which you owed the money to send a letter to the credit reference agencies saying that the matter has been resolved. Also, make sure your report is accurate. Check for accounts you didn’t open, charges you didn’t make, and delinquencies you didn’t cause. If you see evidence of fraud, contact the credit reference agencies immediately. Explain the situation and ask that an alert be placed in your file. Also, report the fraud to the police. Your credit report will follow you throughout your life and can help you financially or hurt you. Review it carefully! Within a month of your inquiry, the credit-reporting agency should notify you of the results of its investigation. If you cannot resolve a disputed Item you have the right to attach a 200-word statement, free of charge, explaining the nature of your disagreement. Your statement will become part of your credit file, and will be included each time your credit file is accessed.

Credit Report Privacy & Your Rights
Because your credit report contains information about you that is not publicly available, it is important that you know your legal rights as a consumer to access this information. The Data Protection Act and Consumer Credit Act restrict who has access to your sensitive credit information and what uses can be made of it. The major credit reference agencies have also adopted voluntary guidelines to enhance their consumer services.

About the author

Mike Burridge is a Director of Leybridge Limited who are specialist Mortgage Brokers which specialise in adverse credit mortgages & general insurance.

IVA / Bankruptcy and your home FAQ’s

(or) Obtaining a mortgage & remortgaging whilst in an IVA & what to expect.

What is the equity release clause in an IVA?

Under an IVA you will be expected to propose that, in the latter part of the agreement term to release any share of your interest in the equity of the property, if it is practical to do so i.e. there’s enough equity to obtain a remortgage to release some money to contribute towards your debt and there are no known future affordability issues.

The way it works is this: you propose that in the 4th or final year of the (English) IVA you will obtain a market valuation of the property and redemption statements on the mortgage and any further secured charges against the property. Creditors and Insolvency Practitioners realise that it’s next to impossible to get a 90-100% remortgage for a debtor in a IVA so they will settle on a remortgage up to 85% of the property’s value.

If the charges against the property at revaluation time are therefore less than 85% of its value you will take the remortgage offer to release the equity into the IVA, which will consequently reduce your payments to your IVA. Creditors do not normally wish to see your increased mortgage payments at higher than 60% of the amount you are paying into the IVA.

If you cannot get a remortgage offer at that time, but equity in the property has risen, then creditors may instead agree that the IVA continues for at most one extra year in lieu of release of equity from the property. They are only likely to agree to this though if the amount of equity release being forgone is similar to what one year’s extra IVA payments would amount to.

If the amount of equity you have in the property is more than the amount of your unsecured debts at the outset, you can not enter an IVA; the creditors would simply expect you to remortgage your house to pay off the unsecured debts in full.

If the property is jointly owned with significant equity but only you are subject to the IVA, then creditors will expect to see only your share of the equity, so your partner’s share remains untouched.

What happens to my home in a bankruptcy?

Under bankruptcy, if you own your house, either solely or jointly, your personal ownership (interest) will pass to the Official Receiver (OR) or Trustee. While this doesn’t mean you will be evicted and out on the streets straight away, it does mean that unless you can afford to buy your interest back the house will have to be sold, this will be by court order if you do not agree to do it voluntarily. You will be given one year’s grace during which time you can continue to live in your house as long as you continue to pay the mortgage, then after that year’s up, either you buy back the Official Receiver’s interest or the house will have to be sold. Normally your spouse, partner or family member will be able to buy back your interest from the OR.

Will I be able to obtain a mortgage (buy a house) whilst I am in an IVA?

Yes, people in an IVA can take out a mortgage and contary to popular belief an IVA will not necessarily have a massive adverse affect on your application. If you are considering taking out a mortgage whilst in an IVA there are some pitfalls to watch out for and a few points to remember. First and foremost; you will need the permission of your Insolvency Practitioner (IP).

Your credit worthiness
It is unlikely for you to be able to walk into any high street bank and obtain a mortgage, you will need to seek the advice of a mortgage broker who specialises in adverse credit lending. This does not automatically mean that you will have to pay higher rates than a high street mortgage, although the mortgage products and therefore rates available to you, will be based on your wants, needs and circumstances. You will be unlikely to obtain a mortgage if your IVA has failed (shown on your credit file).

Your deposit & other fees
It is reasonable to assume that people in an IVA do not have large levels of savings, and therefore putting down a deposit or paying fees which can not be included into the mortgage could be difficult. This does not mean that it is impossible. It may be that a family member or a friend is able to help by lending or giving you the deposit. This is acceptable, in most cases, but it can cause complications. The person providing the deposit should consider protecting their money from creditors, through a “Deed of Trust”, (if a relative or friend lent you the deposit to buy a property. The very fact that a deposit was paid builds equity into a property, and adds to a possible rise in value, the opportunities for creditors to extract extra funds through a re-mortgage are increased. To reduce some of this risk it may be possible to protect any deposit from a third party through a “Deed of Trust”.) This is a legal document drawn up to protect any money, provided by a third party, from the creditors. The other fees to consider are stamp duty (if the house price exceeds certain limits), solicitor’s fees, valuation fee, the brokers completion fee and on some mortgage products require a lenders arrangement fee.

The monthly repayments
Repaying a mortgage in an IVA is acceptable, as long as it does not diminish the regular monthly repayments into your IVA. What this means is; if your IVA repayment is £350 per month and your accommodation costs are currently £700 per month, it should be acceptable to creditors for you to purchase a property as long as it costs no more than the £700 per month you currently pay, and therefore does not reduce the amount you are able to offer towards your IVA. If however, the cost of the mortgage was £750 per month, then your ability to pay £350 per month into your IVA would be reduced by £50 per month and would probably not be acceptable to creditors.

Your Equity
The length of an (English) IVA is usually five years, if during that time you buy a property, even if it’s part way through, there is a strong chance that the property will increase in value. Creditors would want any added value, i.e. equity, to be considered at the end of the IVA, but only if the total debt was not repaid in full and there was still a shortfall owed. The ratio to be considered when working out how much equity can be released in a re-mortgage at the end of an IVA is usually 85% of the “loan to value” (LTV) figure. What this means is that if a property is now valued at £165,000, the maximum amount a lender would be prepared to lend against that property would usually be 85% i.e. £140,250. If that property has an outstanding mortgage of £100,000 the amount of releasable equity would be equivalent to the difference between the (outstanding mortgage) £100,000 and (85%) £140,250, a balance of £40,250, which could then be used to offset any shortfall due to creditors at the end of the IVA.

Will I be able to remortgage during my IVA?

You will be expected to remortgage as previously mentioned for the equity release clause, however there are occasions when it may be possible to remortgage before this time.

Remortgaging to reach a full and final settlement of your IVA.
This is not unusual and in most cases will be agreed by your IP and creditors if you are able to pay off the entirety of the original debt or a significant amount more than the original proposal.

Remortgaging to stop a repossession during your IVA.
This is not unheard of, but in most cases it will require a fair amount of negotiation, and explanations to your IP and for your creditors, as in most cases this will mean increasing your debts and possibly reducing your payments into your IVA. Being in the situation where you are facing repossession of your home, after all the in debt analysis of your circumstance whilst setting up the IVA, means you possibly have affordability issues that need to be revisited and re-addressed with your IP as soon as you become aware of them. Missing mortgage payments puts you in danger of losing your home and in danger of failing your IVA, if you find yourself in the situation where your mortgage provider is threatening repossession or seeking a court order to repossess, speak to a specialist mortgage broker who is able to advise immediately.

How do I get a mortgage or remortgage during my IVA and what should I expect.

Remember, there is life after IVA’s / Bankruptcies. Contact a reputable, Financial Services Authority (FSA) authorised and regulated mortgage broker to discuss your options.

There are two types of mortgage brokers; those able to offer full advice and those only able to conduct non advised sales. It is important that you seek and speak to a specialist mortgage broker, who is able to offer you full advice. The mortgage broker should take you through a full fact find which will include details regarding; your personal details (name address, contact numbers etc.), your employment details, your income details, your expenditure details, your credit history (including a full credit search), your current mortgage details, the mortgage product features you are looking for and your attitude to risk.

The mortgage broker will then search through their lenders and find all the products that match the criteria which corresponds with the details in your fact find and the results of your credit search report, and then make their recommendations for the best product to suit you and then fully explain the mortgage product to you.

After speaking to a mortgage advisor you will be sent an Initial Disclosure Document (IDD) and once a product has been recommended you will be sent a Key Facts Illustration (KFI) the KFI will tell you amongst other things what rate you have been quoted and what your monthly payments will be. You should also receive a suitability letter (although, this is not currently a document ‘required by the FSA’ ) which will detail the reasons why the mortgage product was recommended.

The initial advice, your IDD, KFI and Suitability letter are usually given free of charge.

The service you receive from mortgage product recommendation to mortgage completion is dependent on the mortgage broker you decide to go with, make sure you select a mortgage broker that has experience in dealing with IVA’s, adverse credit lending and packaging mortgage products to completion.

About the author

Mike Burridge is a Director of Leybridge Limited who are specialist Mortgage Brokers which specialise in adverse credit mortgages