Creating solutions for IVA and DMP clients

Economic conditions in recent years have posed significant affordability challenges for mortgage borrowers. While some have tightened their budgets amid rising living costs, others have struggled with defaults on credit card bills and other debts.

In a certain number of cases, the credit defaults may have escalated out of control, leading the borrower to enter an Individual Voluntary Arrangement (IVA) or Debt Management Plan (DMP) as they seek ways to regain control and better manage their finances.

It’s a commonly held misconception among consumers that debt of this kind can exclude them from getting a mortgage. While it’s certainly true that numerous lenders may be unwilling to work with this type of borrower, there are a handful of specialist lenders and building societies, including Loughborough Building Society, that are willing to lend to those in an active IVA or DMP.

Many of these borrowers may have experienced tough times that have led to them falling into financial difficulty. In many cases, they may be seeking a second chance and have made significant progress in turning their lives around.

Having an active IVA or DMP does not necessarily mean the client is no longer creditworthy. Unforeseen life events such as redundancy, death or divorce can all have a significant impact on a person’s finances.

Therefore, digging deeper and focusing on the borrower’s individual story can help brokers better understand the circumstances that led to their client’s financial struggles. This can help to determine whether there’s a suitable financial solution and lender that can cater for their client’s needs.

For example, one common scenario that we often encounter is those where a borrower may have lost their job and taken a lower-paying role as a stopgap. As a result, they were unable to meet their prior financial commitments, and the overextension of debt forced them into an IVA.

Yet over the course of a few years, their circumstances improved as they secured a better-paying job, stabilised their finances, and got back on track.

As a specialist lender, we also often encounter cases where families face temporary challenges, such as high childcare costs that put a strain on their budget. Over time, as children begin school, childcare expenses decrease, and a parent may re-enter the workforce.

This results in the household income increasing and an improvement in the family’s overall financial situation.

In each of these cases, the individuals have been victims of circumstance and have faced financially difficult times as a result. However, they have demonstrated resilience and attempted to improve their situation by taking practical steps to rebuild their financial health and get themselves back on track.

As an active lender in this area of the mortgage market, we proactively work with brokers to provide borrowers in an IVA or DMP with the opportunity to secure attractive rates and terms on their mortgage deal, to 70% LTV, to help them regain control of their finances.

This includes accepting unsatisfied defaults on loans, credit cards and HPIs, provided they are also around the same life event. This also extends to unsatisfied CCJs up to a total of £1,000 as well as missed mortgage and loan payments over the last two years that fall within status 3 to status 6.

Discussing credit-related issues and financial difficulties with a client is not always an easy conversation to have. However, understanding life events and determining the reasons why a client may have entered an IVA or DMP could prove critical when helping to determine their borrowing suitability and getting back on financial track.