If you are a homeowner and have equity in your property then you’ll usually need to remortgage or release equity from your home during the fourth year of your IVA. An Individual Voluntary Arrangement (IVA) can be an option for managing your debts if you owe over £6,000 in unsecured debts and can afford to make monthly repayments of at least £80. If you’re a homeowner, an IVA offers you an advantage over bankruptcy and Debt Management, as your home will be protected from legal action by your creditors.
Once your IVA is in place, your creditors can’t ask the court to make a charging order that would secure previously unsecured debts against your house or flat. They also can’t petition for your bankruptcy, which could lead to your home being sold for the benefit of your creditors.
However, it’s important to recognise that your home could still be at risk with an IVA, for example, if you don’t keep up with your monthly payments. And you’ll almost certainly be required to either re-mortgage or release equity from your property to help repay your debts.
Here we will answer some of the most common questions we’re asked about re-mortgaging or releasing equity during an IVA.
1. When will I need to re-mortgage my home?
You’ll usually need to re-mortgage or release equity from your home during the fourth year of your IVA. Most IVAs run for five years, so you’ll be coming towards the end of the arrangement. The reason for this timing is to give you some breathing space to get back on your feet, so you won’t be hit too hard by the additional costs of re-mortgaging or releasing equity.
2. Will I be told about this in advance?
Yes. The licensed Insolvency Practitioner (IP) who sets up your IVA will discuss the possibility of re-mortgaging or releasing equity before the arrangement is set up. If they decide that this will be required, it will form part of the proposal that will be sent to your creditors for consideration. If the IVA is approved, the requirement to re-mortgage or release equity will then be written into its legally-binding terms.
3. How much equity will I need to release?
Your creditors will expect you to raise as much money as possible to help repay your debts. However, the amount you’re able to borrow will depend on your individual circumstances, such as your credit history and the amount you can afford to repay your lender each month. The percentage of equity you can release from your property may also be capped to, say, 75% or 80%, by individual lending policies.
4. Will I get the same interest rate as my current mortgage?
Not necessarily. The interest rates available to you will depend on market conditions and may also be affected by your credit rating and/or payment history with your current lender. This could mean that you end up paying more for the amount you’re currently borrowing on top of the additional amount for the re-mortgage or equity release loan. There may also be upfront fees to pay, even if you stay with the same provider.
5. What if I can’t re-mortgage or release equity?
It isn’t always possible to re-mortgage, even if this is part of your IVA terms. For example, your credit history or general market conditions might stop providers lending to you. Or, your financial circumstances may have stayed the same or got worse during your IVA, in which case you would be unable to afford the added burden of increased mortgage payments.
Your IVA terms will set out in advance what will happen if you’re unable to re-mortgage as planned. In most cases, your IVA will simply be extended by 12 months. Your normal payments will continue for an extra year, so your creditors will still receive some of the money they were expecting from a re-mortgage or equity release.
6. If I can’t re-mortgage, will my debts still be written off at the end of the IVA?
Yes, provided that you make all your monthly repayments on time and stick to the IVA’s other terms. Even if extending your IVA by a year doesn’t pay your creditors as much as if you’d been able to re-mortgage or release equity, this won’t stand against you. After the IVA has ended, any leftover unsecured debts listed within it will still be cancelled.
7. Can I re-mortgage earlier than Year 4 of my IVA?
If your situation makes this possible and your IP agrees, yes. Circumstances like getting a better-paid job or co-habiting with a partner can increase your disposable income, enabling you to raise money against your property when this wasn’t possible before. On occasion, this has even enabled people to settle their debts in full and end their IVA early.