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Dear Delia

Dear Delia My clients Jeff and Kerry entered into an individual voluntary arrangement when Kerry was pregnant, as her company only offered a statutory maternity package. When they decided to get a bank loan to extend their house they were told that as a result of entering into an IVA, they were classed as a credit risk and loans via traditional lending institutions were no longer open to them. Is this right, and if so, why?

Delia says: Many people don’t understand the consequences of IVAs as Justine Tomlinson of Mortgage Next and Mark Bergin of DB Mortgages point out. Have you got a problem for Delia? Email

Intermediary response:Justine Tomlinson is marketingdirector at Mortgage Next

Many people entering into IVAs do not understand the ramifications of their actions in terms of their credit ratings, and with more than 30,000 IVAs being entered into in the first three months of 2007, the number of clients and potential clients falling into this category is growing apace.

Statistics from the Department of Trade and Industry’s Insolvency Agency reveal that 30,075 insolvencies were registered during Q1 2007. This represents an increase of 1.2% on the previous quarter and a staggering 23.9% increase compared with the same period last year. The figures include 16,842 bankruptcies and 13,233 IVAs.

Citizens Advice Bureau has reported an 11% increase in the number of people experiencing debt problems, to over 1.4 million. What’s more, the number of people seeking help with housing debt problems has increased by 20%.

There is therefore a need for lenders that are willing to accommodate clients with historic debt problems such as those experienced by Jeff and Kerry. This is an area of the market which traditional lenders are keen to avoid, but a number of specialist lenders are willing to help.

Many lenders, even specialists, class borrowers who have recently entered into IVAs as high risk. Some will only extend lending facilities to them after an IVA has run for six or even 12 months and a proven record of payment has been established. Some will extend lending facilities after just one payment has been made and class the account as satisfactorily conducted, but most will restrict LTVs to between 80% and 85%.

Infinity Mortgages and Future Mortgages will provide funding after just one payment and both will offer advances of up to 90% LTV. DB Mortgages offers up to 90% LTV and also classes these clients as light adverse when others may classify them as medium if not heavy adverse.

Your clients have a financial adjustment to make over the next couple of years and assuming financial certainty is something they would enjoy, the product I would recommend is DB’s two-year fixed rate exclusive range which undercuts its core range by 0.2%. This range also benefits from free legals and free valuations, keeping outlay down at a time when people most need it.

Income would be a big factor in considering this deal as IVA payments are considered as a financial commitment. But assuming their income covers the loan, this would be the best option for Jeff and Kerry.

Lender response: Mark Bergin is director of sales and marketing at DB Mortgages

Given the increasing number of people entering into bankruptcy and taking out IVAs, it is no wonder that this is widely perceived as a growth area of the market.

In 2006, the number of bankruptcies and IVAs topped 100,000 – the highest level ever – and it is thought that this number will continue to move upwards.

Indeed, some in the packaging arena have already acc-ounted for this trend and introduced products targeted at this sector, thereby demonstrating how they remain in touch with brokers’ and clients’ requirements in a rapidly changing marketplace.

First, I would point out that before entering their IVA, Jeff and Kerry should have ensured they explored all other avenues, including the use of a financial adviser. By doing this, they might have avoided the need to go down the IVA route.

For example, a remortgage may be the solution rather than an IVA in certain circumstances, but this is speculation and as the couple’s IVA is already in place, I need to consider the situation as it stands.

Let’s consider IVAs from our light adverse products onwards, provided they have been conducted satisfactorily. By that we mean that all payments due under IVAs have been made on time. We specify no time period, so this could be effective after just one month.

A remortgage would allow up to 90% LTV. Using our affordability model means existing IVA commitments would need to be taken into account.

I am not aware of Jeff’s employment situation but assume he is in stable employment and has income that can be used, especially in view of the downturn in Kerry’s income.

A choice of two or three-year fixed rates or a two-year tracker is available, along with some exclusives. Deciding to go down either the full status or the self-cert route may result in a slight difference when it comes to interest rates, but this would depend on the couple’s income and their ad-viser’s recommendation.

I do not know the amount of borrowing required nor the income involved when it comes to this couple’s finances, but a decision in principle can be provided by our online system.

This allows cascading both up and down the credit spectrum to ensure the chosen product fits the appropriate adverse tier.

Key Facts Illustrations, case tracking, milestone updates and downloadable offers are also available on our website.


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