One of the greatest fears any homeowners will have when considering an IVA will be what will happen to their home. They may have lived there for many happy years, brought their families up in it, and relied on it to provide a source of comfort after a hard day’s work. The safety and security a home provides cannot be underestimated, and anything that could threaten it is frightening.
Thankfully, an IVA is not something to fear if you’re a homeowner.
Under an IVA you will not be asked to move out of your home or sell it. You may be asked to release some of the equity in the property, if there is any, but the amount released will always take into account the feasibility of doing so against the costs the lender may charge and your future financial security.
Usually no remortgage is required at the beginning of the IVA term, in fact it may be very difficult for you to obtain a remortgage from anyone during your IVA. That’s why it is normal for an Insolvency practitioner to talk to you about releasing some of your share of your home’s equity around six months before the end of the IVA. By that time you will be close to finishing the IVA and being financially solvent, and have shown yourself to be reliable and capable of making payments every month. This will stand you in good stead if trying to find obtain a remortgaged.
There are a number of guidelines an IP will follow to ensure that any remortgage is feasible and sensible:
- The 85% rule: you will not be expected to remortgaged your home for more than 85% of its current value or 85% Loan to Value (LTV)
- The amount of equity to be released should be more than £5,000 and include any fees and costs associated with the remortgage
- The equity released must not be in excess of the unsecured debt you owe.
- The remortgaged term should not take you beyond your existing mortgage length or into retirement age
- You IVA payments must be reduced to take into account the increase in your monthly mortgage payment
If a situation occurs where you do have equity in your home, but you are unable to find a lender willing to offer you a remortgaged, your Insolvency Practitioner may ask you to continue making your payments for a further year to take account of this. While it can seem a bit disappointing to have to continue for a further year, it means that the equity in your property remains intact.
During your IVA, your property will be subject to a restriction, which your Insolvency Practitioner will lodge with the land registry. This protects the equity within your home, but also means you cannot sell or secure a loan against the property without the Insolvency Practitioner’s knowledge. However there are some instances when you can sell your home during an IVA and at the Insolvency Practitioner’s discretion, for example if you have to move to start a new job.
What if you are renting a property?
If you currently rent a property and do not have your own home, you can still have an IVA. IVAs are not dependent on having assets as it deals with unsecured debts only.
Your Insolvency Practitioner will look at where you live to assess the costs of your rent compared to those in your area and whether it is affordable based on your salary. It is unlikely you will be asked to move unless you have taken on a massive rent that you cannot afford and is pushing you deeper into debt each month.
Your landlord does not need to know you have an IVA, and your rent will be prioritised above the debt for the duration of the IVA in the same way that a mortgage is. However, you may run into problems if you want to move to a new property using a rental agency. Most agencies representing landlords will do a credit check, and it will flag up your IVA very quickly and quite possibly reject you as a tenant, even if you have good references, so you may decide to rent privately for a while until you have completed your IVA.
Sometimes your Insolvency Practitioner may be able to talk to the rental agency and explain that rental payments will always be prioritised with the IVA, that you have been making good progress to date and there is no reason the believe this will not continue. Or the rental agency may insist on either a bigger deposit upfront or a guarantor.
What if you still live at home?
Even if you live at home you can still have an IVA and it will not affect the finances of your parents at all. An IVA is specific to an individual, not an address. If you make a housekeeping payment to your parents every month this will be prioritised in your budget.