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Equity Release in an IVA

If you are a homeowner your IVA proposal will contain a clause which states you must make an attempt to release any available equity in your property by way of a remortgage for the benefit of your creditors.

What do I need to do?

Six months prior to the expiry of your IVA your supervisor will contact you to request that you provide an open market valuation of the property (the price that your property would reasonably sell for in a competitive auction setting) along with an up to date redemption statement (total figure needed to clear your mortgage) from your mortgage provider and any secured lenders. 

The equity in your home is its value less the outstanding mortgage and any other secured loans. In other words, how much of the property you own.

How much equity do I need to release?

The equity release is based upon a maximum of 85% loan to value. This means that if you are able to obtain a remortgage for the purpose of introducing funds into the arrangement, you will keep at least 15% of the equity available.

An example of how this is calculated is as follows:

Detail £
Value of property 150,000
85% of the value of the property 127,500
Less: Amount owed to mortgagee (110,000)
Less: Amount owed to secured lender (10,000)
Total available equity for purposes of IVA 7,500

Once the level of realisable equity has been established you will be asked to attempt to obtain a remortgage to release these funds for the benefit of your creditors.

If the level of equity available based on this calculation is below £5,000, you will not be required to make any contribution into the arrangement in respect of the property.

What if I can’t afford IVA contributions and these extra mortgage payments?

Your contributions will be adjusted for the remainder of the arrangement to allow for the new mortgage payments. If this results in the surplus funds available for the IVA falling below £50 per month, the payments will be stopped and the IVA will be concluded. 

I have been refused a remortgage, what happens next?

If you are unable to obtain a remortgage this will not be viewed as a failure to comply with the terms of the arrangement.

As an alternative, your supervisor may request you extend the arrangement for a period of up to 12 months to enable you to make additional payments in lieu of the equity. Do not worry if the 12 additional payments do not equal the amount of the equity in your property - creditors will not ask for more than 12 months, and accept that you have complied fully with the terms of your arrangement.

Considering an IVA?

If you're not currently within an IVA with Harrington Brooks, but want some more information as to whether an IVA is the best solution for you; please see below.

Solution Spotlight: Individual Voluntary Arrangements

Is an IVA right for me?

IVAs are a popular solution for unaffordable unsecured debts over £5,500.
An IVA can write-off a significant amount of debt and stop legal action against you.