Mortgage arrears cannot be included in an IVA. However the Arrangement can still help if you are behind with your payments.
- How can an IVA help if you have Mortgage Arrears?
- Is your home at risk if you start an IVA?
- What if you cannot afford to pay your Mortgage?
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How can an IVA help if you have Mortgage Arrears?
Mortgage arrears are a secured debt. As such they cannot be included in an IVA. If you are behind with your payments you will need to make an arrangement directly with your lender to resolve the problem.
However an IVA can still help. The solution will significantly reduce the amount you have to pay towards your unsecured debts. As such it can make available the cash you need to pay your mortgage on time.
In additon to your normal mortgage payment you can include an extra amount in your living expenses budget to allow overpayments. The agreement can therefore help you reduce your mortgage arrears over time.
You must agree acceptable overpayments with your mortgage company before finalising your IVA. The required amount can then be built into your living expenses budget.
Is your Home at risk if you start an IVA?
An IVA does not put your home at risk. Once in place the Arrangement actually provides the property legal protection. Your unsecured creditors are prevented from taking further action against it to enforce their debt.
However in return you will have to agree to an Equity Release Clause. This states that in the last year of the Arrangement you must try to release equity from your property to increase the amount you repay your creditors.
This may not seem very appealing. However if you have increasing mortgage arrears it could mean the difference between you saving your home or not if your lender starts to threaten you with repossession.
What if you cannot afford to pay your Mortgage despite being in an IVA?
An IVA will only help protect your property if you can afford to pay your mortgage and any arrears once it is in place. If you will still struggle with these payments the Arrangement alone may not solve your problem.
You will also need to speak to your mortgage lender about reducing your payments. Under the Mortgage Pre-Action Protocol they have an obligation to consider options which might help you do this.
One solution could be to extend the term of your mortgage. Alternatively it might be possible to move to an interest only product.
In these circumstances if you are unable to reduce your mortgage payments starting an IVA is unlikely to help with your mortgage arrears. You might have to consider selling and moving somewhere less expensive.
After you start an IVA you remain responsible for maintaining your mortgage payments and any overpayments agreed to reduce arrears. You house is still at risk if you do not do this.