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BY Gregory Mullarkey|April 13, 2018House, IVA

How Will My House Be Affected By An IVA?

How Will My House Be Affected By An IVA?

When you set up an Individual Voluntary Arrangement (IVA), creditors will not expect you to sell your house to repay any of your debts. The payments you make into your IVA will always take account of the amount you have to pay towards your mortgage and any secured loans against your property.

As such, you can rest assured that unless something changes, you will have enough money each month to make these payments. They may, however, expect you to obtain a secured loan or remortgage before the end of your IVA to complete your debt repayments, dependent on your home’s value.

What will creditors expect you to pay, and how do they calculate it? Bennett Jones take a closer look and provide examples of how a creditor might work out your IVA contributions.

What will my creditors expect if I own a house?

The amount creditors will expect you to borrow will be limited so that it is affordable for you, and they will not require you to pay anything if your equity in the property (the value of your property minus any mortgages or loans secured on it) is less than £5,000.

If you are not able to borrow any money, because lenders will not allow you to or if a loan or mortgage would be too expensive, your creditors will ask you to pay an extra 12 months’ contributions.

How is the amount to be raised from my house calculated?

For standard consumer IVAs, the calculation of your equity will be done by firstly obtaining an online valuation of your property. Your creditors then use this as a starting point from which they allow a deduction of 15%. This means that if your property is valued at £100,000, for example, your creditors would start the calculation at £85,000.

The balance owed to any mortgagee or secured loan creditor is then deducted from this figure.

The interest of any joint owner, such as your partner, spouse or relative, will also be deducted.

If the remaining balance is greater than £5,000 you would be expected to try and obtain a mortgage or secured loan to achieve this and pay it into the IVA.

How does this work in practice?

In each of the following examples, the IVA proposes 60 contributions at £250 per month.

Example 1

House value £150,000
85% of house value 127,500
Less mortgage – 50,000
Less interest of joint owner – 38,750
Balance 38,750

If you cannot obtain a remortgage because the joint owner will not agree to this, the maximum amount you will pay is another 12 months’ contributions of £250 (i.e. £3,000).

Example 2

House value £150,000
85% of house value 127,500
Less mortgage – 120,000
Less interest of joint owner – 3,750
Balance 3,750

As the balance is only £3,750 (less than £5,000), no further funds are required to make up the rest of the debt and the IVA concludes after you have paid 60 contributions of £250.

Example 3

House value £150,000
85% of house value 127,500
Less mortgage – 90,000
Balance 37,500

If you are unable to obtain an affordable remortgage or secured loan worth £37,500, you will be required to pay either 12 months’ additional income contributions totalling £3,000 to conclude your IVA or the amount you can borrow at this time up to a maximum of £37,500 provided that the repayments are affordable and not more than 50% of the amount you were paying as IVA contributions

Your creditors will only expect you to make payments of an affordable amount by using the security of your house before the end of your IVA. They will not require you to sell your house and they do not expect that any money you raise by obtaining a remortgage or a secured loan will be unaffordable for you to make repayments.

For support and guidance on any of the topics discussed here, give Bennett Jones a call on our Freephone number 0800 7710 073 or leave us a message on our contact form.

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