Understanding IVAs and DMPs
An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors to repay a portion of your debts over a fixed period, typically five to six years. An insolvency practitioner manages the arrangement, and creditors agree to write off any remaining debt at the end of the term. An IVA is a formal insolvency procedure and is recorded on the Individual Insolvency Register.
A Debt Management Plan is an informal agreement, usually arranged through a debt management company or charity, where you make reduced monthly payments to your creditors. Interest may be frozen, and the arrangement continues until debts are repaid in full. Unlike an IVA, a DMP is not legally binding on creditors, meaning they can withdraw from the arrangement.
Both arrangements significantly affect your credit rating and will be visible to lenders for six years from the date they are registered or, in the case of DMPs, for as long as the arrangement is active and for some time afterwards.
Can you remortgage while in an IVA?
Remortgaging while an IVA is active is technically possible but practically difficult. There are several challenges to navigate.
Permission from your insolvency practitioner
If you are currently in an IVA, any significant financial transaction, including a remortgage, typically requires the agreement of your insolvency practitioner. They will assess whether the remortgage is in the best interests of both you and your creditors.
Lender availability
Very few lenders will consider a mortgage application while an IVA is still active. Those that do are specialist lenders who charge significantly higher rates, reflecting the elevated risk. You should expect rates of 7% to 12% or higher, depending on the stage of the IVA and your overall financial picture.
The timing question
Many IVAs include a clause requiring the debtor to attempt to remortgage in the final year of the arrangement. This is designed to release equity that can be distributed to creditors, potentially increasing the amount they recover. If your IVA includes such a clause, you may be required to explore remortgaging as part of the terms.
Can you remortgage while in a DMP?
Remortgaging during a DMP is generally more straightforward than during an IVA because a DMP is an informal arrangement. There is no insolvency practitioner to seek permission from, and the arrangement does not impose legal restrictions on your ability to take out new credit.
However, the credit impact of a DMP is still significant. Missed and reduced payments to creditors will be recorded on your credit file, and lenders will see the DMP when they assess your application. Specialist lenders are typically required, though the criteria are generally less restrictive than for active IVAs.
If you can remortgage to raise enough capital to settle the DMP in full, this can be a sensible strategy. It replaces multiple creditor payments with a single mortgage payment and ends the DMP, which stops further negative entries on your credit file.
Remortgaging after an IVA or DMP has ended
Your options improve significantly once the IVA or DMP has been completed or settled. The key factor is how long ago the arrangement ended and how your credit file looks in the period since.
- Immediately after completion: Specialist lenders are required. Rates will be higher than mainstream but the range of available products widens compared to during the arrangement. Expect rates of 6% to 9%.
- One to three years after completion: More lenders become available as time passes. If you have maintained clean credit since the IVA or DMP ended, near-prime lenders with more competitive rates may consider your application.
- Three to six years after completion: As the IVA or DMP drops off your credit file (six years from the start date for IVAs, or six years from the last missed payment for DMPs), mainstream lenders become increasingly accessible. By the time the record is removed entirely, your options are essentially the same as any other borrower, assuming your recent credit history is clean.
How much equity do you need?
Equity requirements are typically stricter for borrowers with IVA or DMP history. While mainstream lenders might offer debt consolidation at 85% to 90% LTV, specialist lenders dealing with borrowers who have had formal debt arrangements often cap the LTV at 70% to 80%. This means you need more equity to achieve the consolidation.
The stronger your equity position, the better your options and the lower the rate. A borrower with 40% equity and a completed IVA two years ago will have significantly more choices than a borrower with 15% equity in the same situation.
Settling an IVA early through remortgage
One of the most common reasons for remortgaging in connection with an IVA is to raise a lump sum to settle the arrangement early. If you can pay off the remaining balance owed under the IVA, the arrangement is completed ahead of schedule, and you can begin rebuilding your credit sooner.
This typically involves remortgaging to a higher amount and using the additional funds to make a lump sum payment to your insolvency practitioner. The payment settles the IVA, and you are left with a larger mortgage but no IVA obligations.
However, you need to consider whether this genuinely improves your position. The IVA may have included provisions for debt write-off at the end of the term. By settling early, you might be paying more than you would have paid by completing the arrangement. Your insolvency practitioner can advise on whether early settlement makes financial sense.
The role of a specialist broker
Navigating the mortgage market with an IVA or DMP history requires specialist knowledge. A broker experienced in adverse credit cases will know which lenders are most likely to approve your application, how to present the circumstances surrounding your debt arrangement in the most favourable light, and how to structure the application to maximise your chances of approval at the best available rate.
Applying directly to lenders without this expertise risks unnecessary declined applications, each of which leaves a credit search on your file and can further reduce your chances with other lenders.
Getting matched with the right broker
Nesto matches you with an FCA-regulated broker who specialises in your circumstances, including cases involving IVAs and DMPs. The service is free with no obligation. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.