IVA and your house – New homeowner equity release rules

IVA and your house – New homeowner equity release rules

As a homeowner, one of your concerns about an IVA will be how it affects your property. The rules about what, if any, equity you will have to release changed in September 2021 to give clearer guidance.

Included in this article: 

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The rules highlighted in this article only apply to protocol compliant IVAs. You must check the terms and conditions before you sign to make sure you are happy with the agreement.

Key facts a homeowner needs to know about an IVA

The IVA is the only debt solution available in England and Wales that provides legal protection for you as a homeowner. Once the agreement is in place, your creditors can’t force you to sell. In addition, they can’t attempt to secure their debt against your property.

However, your house or flat is a major asset. As such you have to acknowledge that you own it. You also have to give information about its current market value and what if any equity you have in it.

If you have no equity, it is likely that it will not form part of your IVA. But where you do, and there is a good chance that you might be able to release some of it, you will be expected to attempt to do so as part of the agreement.

Equity release where required, is normally by way of either re-mortgage or secured borrowing. This happens in the 54th month of a standard 60 month agreement.

An IVA is designed to protect your house or flat from your debts. However, if you have equity you may have to be prepared to release some of this. The the amount of debt you pay back will increase as a result.

What if there is no equity in your property?

In an IVA, the amount of equity in your house or flat is calculated using 85% of its total value. So if the market value is £200,000, the value used in the IVA calculation will be £170,000.

Given this calculation, if your share of any equity is less than £5,000, it is considered that you have no equity in your property. In these circumstances, you will not be required to release equity during the Arrangement.

This is the case even if house prices rise in the mean time. the IVA will be based on monthly payments only. This is an updated rule within the IVA protocol 2021 which was introduced in September 2021.

A homeowner who has less than £5,000 of equity in their property will not have to release equity as part of their IVA. The agreement will end after 5 years.

The rules if you do have equity in your property

Where your share of the equity in your home is greater than £5,000 one or other of the two following scenarios will apply:

Your IVA will last for 6 years (72 months) with no further requirement to release equity if:

– The total secured borrowing required to raise equity would rise above 45% of your total household earned income (from salary, self-employment and pensions).
– The surplus income you pay into the IVA is £100 or less when it is drafted and agreed.
– Where you are aged above 60 at the start of the agreement.

When the above do not apply, the length of the agreement will be 60 months. However, you will have to agree to attempt to release equity as part of the deal.

Your property must be valued again in the 54th month. If you are unable to release available equity at that time, the number of payments will be extended to 72 months. Once these are paid, the IVA will be completed.

Where you are able to release equity, this will have to be paid into your agreement.

The amount you will have to raise is limited. The additional cost of any new mortgage or secured borrowing can’t be more than 50% of your IVA payment. The mortgage term can’t extend any longer than your existing mortgage or past your state retirement age.

Want free, no obligation advice about whether or not you will be expected to try and release equity as party of your IVA? Give us a call (0800 011 4712) or complete the form below.

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6 thoughts on “IVA and your house – New homeowner equity release rules

    Kristel says:

    I want the property and mortgage on my own my ex husband is in the Iva if I remortgage and pay the Iva his equity in the property can the Iva sign the house to me

      Hi Kristel

      If both you and your ex agree that you should become the sole owner of the property, simply paying his IVA company a lump sum will not achieve the result you want.

      The only way to move the property into your name will be to remortgage so that the new mortgage (and property deeds) are in only your name. Both parties will have to agree to this. He will have to sign the deeds over to you.

      As part of the agreement, you are right, you will have to pay his share of any equity to his IVA. This would mean that his IVA company would then remove the restriction they are likely to have placed on the property.

    Kristel says:

    Hi James
    Thank you for your reply
    What if I pay the Iva his equity and he still refuses surly they wouldn’t take my money if this is the case?
    I thought he would have to sign as I’m paying his equity?


      Hi Kristel,

      You will not be able to do anything unless your ex agrees. You can’t get the property in your name alone without his signature…. So, I strongly advise not to do anything until you have reached that agreement with him. You might need to get a solicitor to ensure the agreement between yourselves is drawn up correctly. Only then can you start thinking about getting the mortgage changed and paying his equity to his IVA.

    Sharon W says:

    Hello just wondering if you could help me.. when I come to the end of my iva my ex partner as refused to remortgage we would only have a couple of years left on the mortgage what would the iva do about this.. any information would be greatly appreciated

      Hi Sharon

      In these circumstances, the IVA company should agree that remortgaging is not possible. At the end of the day they can’t force a joint owner to remortgage. As such they should extend your monthly payments for a further 12 months instead (i.e. without the need to remortgage). However you would need to double check this with your IVA company.

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