If you own a house, an IVA might be an ideal debt solution for you. However you need to be aware of the implications. One of these is the possibility that you will have to try and release equity from your property in the 5th year of the agreement.
Included in this article:
- How does an IVA affect your House?
- Will you have to release Equity?
- What if the property is in Joint Names?
- Remortgage to settle your IVA early
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How does an IVA affect your house?
If you start an IVA, your house will be legally protected from your unsecured creditors. They are no longer allowed to take action against it to enforce the repayment of the money you owe.
Remember, your mortgage and any other secured debts are not included in the Arrangement. These still have to be paid. A sufficient amount must be included in your living expenses budget to cover the associated monthly payments.
Your mortgage lender may be told that you have started an IVA. However they will not be concerned as long a you continue to make your payments on time.
If you are struggling with your mortgage an IVA might help. It will reduce your unsecured debt payments thus freeing up sufficient cash to pay your mortgage on time.
Will you have to release Equity from your Property?
If your IVA started before April 25
Where you are a home owner, your IVA will include what is known as an equity release clause. This requires you to try and release equity from your property to increase the amount of debt you repay.
Normally around month 54, your IVA company will tell you to get an up to date valuation of your property. They will use this to calculate the equity in your property (based on 85% of the market value less the outstanding mortgage and any secured loans).
If based on this calculation, your share of any equity is less than £5000, it is ignored. The Arrangement will finish after you have made your agreed payments.
Where you have more than £5k of equity, you will normally have to see if you can release any of it by either re-mortgaging or with a secured loan. As a safeguard you cannot be asked to increase your mortgage or secured debt repayments by more than 50% of your current IVA payment.
If you are unable to re-mortgage due to your income or other factors, your IVA payments will be extended for an extra 12 months instead.
If your IVA started after April 25
In April 2025, the requirement to release equity from your property was removed (in accordance with the IVA Protocol 2025).
As a result, if your IVA starts after April 25, you will be unlikely to have to release equity from your home. Instead, the following provisions will apply:
- If your share of any equity in the property (based on 85% of the market value) is less than £10,000, then it will be ignored. The property is excluded from your proposal and it should last a standard 5 years.
- If your share of the property equity (based on 85% of the market value) is £10,000 or more, the property is still excluded from the IVA. However the length of the agreement will be extended to 72 months.
Even if your IVA started after April 2025, there are still some instances where you may have agreed to a bespoke IVA. If this is the case, it is likely that an equity release clause will still be included. Examples of where a bespoke IVA may have been used are:
- Where you have a considerable amount of equity in your home.
- If you are self employed with trade creditors and/or HMRC debt.
- Where you own investment properties over and above your main home.
What if your House is in Joint Names?
A third party is not responsible for paying your debt. As such if your house is owned in joint names their share of the equity is always excluded from your IVA.
In these circumstances once you have calculated the total amount of equity in your property the joint owner’s share is protected. The maximum amount you can be expected to released is the total of your share.
If you start a Joint IVA 100% of the equity of a jointly owned property is taken into account. As such if your partner’s debts are relatively low it may be better for then to consider an alternative solution so their equity is protected.
Can you Remortgage your Property to Settle an IVA early?
As a home owner, where you are required to do so, you do not have to wait until the 5th year of your IVA to release equity. You are allowed to remortgage sooner and settle the Arrangement early.
Normally you can only settle early if a lump sum can be provided by a third party. However it is also possible to use cash you have released from your property with a remortgage.
Do not remortgage during your IVA without prior agreement that equity released will be used to settle early. Without such agreement any funds released may be treated as a windfall and you could lose them.
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