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How is home equity affected if you do an IVA
Money Advice, Debt Advice & Debt Help

How is home equity affected if you do an IVA

How is home equity affected if you do an IVA

If you start an IVA you do not have to sell your property. However you have to agree to release some of your home equity if you can.

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Will you have to release home equity if you do an IVA?

If you start an IVA the equity in your home is taken into account. There will be something called an equity release clause in the terms and conditions you sign up to. This states you must try to raise money from your property in the last year of the Arrangement if there is any and it is possible to do so.

In the 54th month your IVA company will ask you to confirm the amount of equity in your home. To do this you will need to get an up to date valuation. Then take 85% of this figure and deduct the outstanding mortgage and other secured debts.

The remaining amount is the equity. Where this is greater than £5000 you will have to attempt to release some of it by remortgaging or with a secured loan.

Where your property is in joint names the total equity is usually split in half. You only have to try and release money if your share is worth more than £5000.

What amount of equity are you expected to release?

There is no fixed amount you have to release from your property under the equity clause. The requirement is simply that you have to raise as much as you can. However there are a number of factors which will significantly limit what you can get.

Firstly your poor credit rating means that your current mortgage lender will not be able to help. There are only a small number of mortgage and secured loan lenders who will be willing to consider you. These are referred to as sub prime lenders and you will need to use a specialist broker to access them.

Secondly the clause makes clear that as a result of any equity release, your mortgage payments can only increase by a maximum of 50% of your current IVA payment. This will mean the amount that can actually be raised is likely to be very small if anything at all.

Where you can’t release any of the equity in your property the clause is ignored. Instead your IVA and monthly payments will be extended for an additional 12 months.

What if there is no equity in your property?

If there is no equity in your property at month 54 the equity release clause is not applied. The Arrangement is not extended and it should complete after your last payment is made.

Remember for it to be considered, your share of any equity must be greater than £5000 based on 85% of the value of the property. As such if your share is worth £3000 the requirement to release is ignored.

This is the case even if at the beginning of the arrangement there was equity in your property. If house prices have now fallen and the equity has disappeared there is clearly nothing to release.

Own a property and need more advice about starting an IVA? Give us a call (0800 077 6180) or complete the form below.

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