Home equity release in an IVA

Home equity release in an IVA

An IVA is designed to protect your home from your creditors. However if you start one you will have to sign up to an equity release clause. So what does this mean?

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What is the IVA home equity release clause?

If you are a home owner your IVA will include an equity release clause. This states that where possible and reasonable you have to release cash from your property. This will be paid it into the Arrangement over and above your monthly payments to increase the amount your creditors get back.

The clause comes into effect in month 54 of your IVA. At that point your IVA company will ask you to establish the value of your equity by providing an up to date valuation and mortgage statement. If your share of any equity is more than £5000 you will have to try and release some of this.

For the purposes of an IVA the calculation of equity is based on 85% of the value of your property. So if it is valued at £200,000 the equity calculation will use a value of £170,000.

Your home is not as risk as long as you follow the obligations set out in your IVA proposal. The equity clause has strict guidelines on how much you can be asked to release and what happens if you are refused a remortgage.

How much equity do you have to release?

Where your share of your property equity is £5000 or less (based on 85% of the market value) you do not have to take any further action. The release clause is ignored and your IVA will end as normal after your last monthly payment has been made.

If your property is owned in joint names with someone else their equity can’t be touched. Only your share is considered. If this is worth more than £5000 you must try to release some of it by either remortgaging or with a secured loan. The amount you have to release is limited in the following way:

Your overall mortgage and secured loan payments cannot increase by more than 50% of your current monthly IVA contribution. So for example if your current IVA payments are £200/mth your mortgage payment can not increase by more than £100/mth. This will significantly restrict the amount of equity that you are able to release.

Looking for a mortgage lender to discuss whether equity release is possible? Give us a call (0800 011 4712) or complete the form below.

What if you are unable to release any money from your home?

Even if your share of the home equity is greater than £5000 you may not actually be able release any of it. There could be a number of reasons for this.

Firstly given your poor credit rating very few lenders will consider you. The ones that do will charge high rates of interest. This will often mean that to release anything at all your mortgage payments would have to go up by more than 50% of your IVA payment. This is not allowed. On top of that your age may be a limiting factor or a joint owner may simply refuse to give their consent to make any mortgage changes.

If given all these limitations you are unable to release any equity no further action is taken regarding your property. Instead your IVA will be extended for an additional 12 months. During this time your current payments continue and you remain subject to the conditions regarding increases in income or windfalls.

If you cannot release the equity in your property for whatever reason it is yours to keep. After the first review in month 54 it can’t be reconsidered.

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2 thoughts on “Home equity release in an IVA

    Lisa says:

    Hello, I am in the last part of my IVA and they are asking about remortgaging. I am not sure where to go for this & not sure if there is any equity in my property.

      Hi Lisa

      To establish if there is any equity on your property you first you need to get a market valuation. Ideally this needs to be as low as possible. I suggest you speak to a local estate agent. Don’t mention anything about your IVA. Just say you need to sell your property quickly because of a job change or something. Ask for a price to realistically sell within 3 months.

      The estate agent should then send you their sales pack with the valuation in writing which is what you need. You can then tell them circumstances have changed and you are no longer selling….

      Once you have your valuation for the purposes of most IVAs you take 85% of this figure. Then you deduct the mortgage and any other outstanding secured debts. The amount you are left with is the equity. If the property is jointly owned you split it (normally 50/50). If your share is greater than £5000 you will have to consider remortgaging. You will then need to speak to a specialist lender about this.

      If based on the above you do have equity but are unable to remortgage the length of your IVA will be extended for 12 months instead.

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