IVAs and Your Property
How will an IVA affect your home?
If you own your home – or any other property – you will be advised on how your property will be treated before you agree to enter an IVA.
If you have a large amount of equity in your property, occasionally creditors may ask for it to be sold to increase the amount they will receive in the IVA. However, you don’t have to agree to this, which will mean the IVA is rejected, and you can look at alternative debt solutions.
In the vast majority of cases, creditors do not ask you to sell your property. Instead, they will insist on a clause being added to your IVA which is commonly known as the ‘equity clause’.
With the ‘equity clause’, your property will not be sold against your will, assuming you keep up repayments on the mortgage and any other debts secured on it. The clause will ask you to try to re-mortgage – or take out a secured loan – on your property in the fifth year of your IVA, if you have equity in it at that time.
In our experience, less than 1% of IVA customers are actually able to release any equity from their property – normally due to a poor credit rating, not enough equity, or being unable to afford the repayments for the additional secured borrowing.
If you can’t re-mortgage – or take out a secured loan – to release equity to pay into your IVA, you normally have two options:
Firstly, you may be able to ask a third party (for example a partner, family member or friend) to pay into your IVA an amount equivalent to 85% of your equity in the property, and complete the IVA as originally planned.
Or, secondly, you may be able to extend your IVA by up to 12 months of additional monthly IVA payments to compensate your creditors for the fact that they won’t be getting any of your equity. Don’t worry if these additional 12 payments don’t add up to the total amount of equity you were originally asked to release – you won’t need to pay any more than these 12 monthly payments!
If you choose to sell your property during your IVA, and you have equity in it, you may be able to offer your creditors a ‘full and final settlement’ from the proceeds of the sale. It is of course up to you whether you sell your property, and it is up to your creditors to decide whether to accept your settlement offer.
In reality, it is completely your choice whether you sell your home or not. One of the advantages of an IVA is that your home – and your assets – are usually protected.
Unlike bankruptcy, there is no demand to sell your home – and if it is suggested by your creditors, you can of course decline the request and not proceed with the IVA proposal.
If you would like more information about how an IVA will affect your property, our debt advisers would be more than happy to assist. Call us FREE on 0800 280 2816, or request a call back.
- Do I need to be a homeowner or property owner to enter an IVA?
- No, it doesn’t matter whether you are a tenant or a homeowner – you can still enter an IVA.
However, there are qualifying criteria that all IVA applicants must meet. You can find a detailed look at this here.
- Will I lose my home?
- This will definitely not happen. It doesn’t benefit you – or your creditors – for you to end up homeless, so don’t worry about having to sell your home.
You may be asked to release equity from your property via a re-mortgage or secured loan and pay the amount into your IVA. But due to the effect of an IVA on your credit rating, you’ll probably find it hard to do this, and there is an alternative solution if you can’t.
- What if I am a tenant in rented accommodation?
- An IVA shouldn’t have an impact on living in rented accommodation, as long as there isn’t a stipulation in your tenancy agreement stating you cannot live at that property if you’re in an IVA.
However, before entering an IVA, it is worth thinking about whether your current living arrangements are long term. This is because if you want to move house, your prospective new landlord is likely to require a credit reference check. Your IVA will show on your credit file, and this could deter the new landlord from offering you the property.
Normally an IVA won’t affect your living situation. However, if you are concerned, simply call us for FREE advice on 0800 280 2816 or request a call back. We’ll help by finding the best debt solution to suit your needs.
*In the case of a one-off lump sum settlement