There may be a house price increase during your IVA. If so the value of your property will rise and it will be more likely you will have to release equity as part of the Arrangement.
- What is the IVA Equity Release clause?
- Will you have to release equity after a price increase?
- Can you keep any of the increase?
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What is the IVA Equity Release Clause?
As a home owner if you start an IVA you will usually have to agree to an equity release clause. This requires you to release equity from your property in the last year of the Arrangement if it is possible to do so.
In or around the 54th month you will have to establish the amount of equity in your property. This is done by getting an up to date valuation. For the purposes of your IVA only 85% of this valuation is considered.
If based on 85% of the value there is less than £5000 of equity you will not have to release any. If there is more you will be obliged to release as much of your share as you can either by re-mortgaging or with a secured loan.
The amount of equity you have to release is strictly controlled. Your total secured debt payments are not allowed to increase by more than 50% of your current IVA payment.
Will you have to release Equity after a House Price Increase?
There may be little or no equity in your property when you start your IVA. However you cannot rely on this situation remaining the same throughout the Arrangement. During the 5-6 years it is in place house prices could rise.
If there is an increase it is likely the value of your property and the equity in it will go up.
As a result when you get a new valuation in the 54th month it may be that based on 85% of this the amount of equity has risen above £5000. You will then have to try and release your share.
After you start an IVA your credit rating becomes poor. This may prevent you from getting a new mortgage or secured loan. If you cannot the equity clause is ignored. Instead your monthly payments will be extended.
Can you keep any of the Increase in your Property’s Value?
In the event of a house price increase during your IVA the value of your property could go up significantly. One of the advantages of the solution is that you will benefit from the rise.
Your equity is calculated based on 85% of the value of your property. As such 15% of the value will always be yours to keep. By definition the monetary value of this protected amount will rise if your house price goes up.
In addition your total secured debt payments cannot go up by more than 50% of your current IVA payment. This will significantly limit the amount of equity you are able to release were this even possible.
You will retain some of the equity in your property at the end of your IVA. As such you will always benefit from any house price increase during the Arrangement.