If you are a homeowner with an Individual Voluntary Agreement (IVA) in place, it is likely that you will have agreed, as part of your IVA, to an equity release clause. This means that, usually in the final six months of your agreement, you’ll be asked to remortgage your house and pay the equity into your IVA. But if the equity in your property is less than £5,000, you will not be required to remortgage.
Your IVA Review
Each year your IVA will be reviewed by your Insolvency Practitioner (IP). The premise of an IVA is that it remains affordable, so your income and expenditure must be reviewed annually.
Typically, you will be asked to provide three months of bank statements and payslips. With this information, your IVA Supervisor will be able to determine whether your IVA payments should remain the same, increase or decrease. This is standard practice with all IVAs and nothing to be concerned about. Your IVA Supervisor just needs to ensure that your payments remain affordable and that you and your creditors are getting the most out of your agreement.
When it comes to the final year of your IVA, specifically in the last six months, if you own your home, you will more than likely be required to complete an equity review and possibly remortgage to release equity, as mentioned earlier.
For new IVAs put forward after 1 August 2021 that are subject to the IVA Protocol 2021, if your share of the equity at the start was more than £5,000, your IVA may have been proposed based on 72 monthly payments with no further action or assessment of equity to be completed. Or, it may have been proposed based on 72 monthly payments with the requirement to complete an equity review and remortgage at month 54. If you are successful in your remortgage, your IVA payment term will reduce to 60 months and you will complete your IVA after 60 months instead of 72 after you have introduced the available equity.
It’s important to check the specific terms of your IVA proposal to see how your property has been treated. This includes looking at any modifications that your creditors put forward at the first meeting of creditors. If you don’t know where to find this information, it’s best to contact your IVA Supervisor right away.
What Is a Redemption Statement?
If you are required to remortgage your home in the last six months of your IVA, your Supervisor will request that you provide an up-to-date redemption statement from your mortgage lender. Your redemption statement will show how much is left on your mortgage, including interest and charges which will help them calculate your share of equity.
You will also need to provide details of any secured loans you have. A secured loan is a loan other than a mortgage that is secured against your property.
The Remortgaging Process
Once you have your redemption statement from your mortgage company, your IVA Supervisor will get a valuation of your property. This can usually be done online, but if that’s not possible, occasionally you will need to have a property surveyor come to value your property.
With the mortgage and secured loan redemption statement and property valuation your IVA Supervisor will calculate the equity in your property based upon an 85% loan to value.
What If There Is Equity in My Property?
If the equity in your property at month 54 is £5,000 or less, you will not be expected to release any of this to pay into your IVA and if your IVA has been proposed as a 72 month IVA under the IVA Protocol 2021 , your payments will continue for 72 months.
If the calculations show that there is over £5,000 equity in your property, depending on your IVA terms, it is likely that you will be expected to remortgage your home and release the equity to pay into your IVA.
Here’s an example of how your IVA equity payment will be calculated:
- Your Property Value = £200,000
- Your Property Value at 85% = £170,000
- Your Outstanding Mortgage = -£100,000
- Your Secured Loan Amount = -£20,000
- Your Equity at 85% (therefore payable into your IVA) = £50,000
What If My IVA Remortgage Is Declined?
If you are declined for a remortgage or other secured loan on your property and have no other means of meeting the payment requirements, you will be asked to make a further 12 monthly payments on your IVA after all of your normal monthly payments have been made. If your IVA was proposed as a 72 month IVA under the IVA Protocol 2021 , your payments will continue for 72 months. Once all payments have been made and you have met all other terms and conditions, your IVA will be complete and any outstanding debt will be written off.
What If I Jointly own my Property?
If you own your property jointly and the IVA is in your name only, you will only be expected to release your share of the equity in the property. So, using the calculation mentioned above, you would only be expected to release 50% of the equity — therefore £25,000 would be payable into your IVA.
What Are the Conditions of an IVA Remortgage?
The amount of debt secured against your property should not exceed 85% of the value of your property. So, your IVA Supervisor will not request that you obtain a mortgage for your property for more than 85% of the market rate.
When you remortgage your property, the monthly repayments should remain affordable. It is also important to note that you will not be asked to remortgage if the remortgage term surpasses your statutory retirement age.
Eligibility for a remortgage will vary depending on the lender.
If you have any questions or concerns about an IVA remortgage, please don’t hesitate to get in touch for friendly and professional guidance.
Do You Have an IVA with Debt Movement?
If you have an IVA with Debt Movement, we will be in touch when it is time to look into your IVA remortgage. However, if you have any questions or concerns, request a callback today and our expert guides will be in touch with you as soon as possible to help guide you through the process and put your mind at ease.