Yes — Homeowners Can Have an IVA
Owning a home does not prevent you from entering into an IVA. In fact, one of the key advantages of an IVA over bankruptcy is that it does not automatically force you to sell your home. However, if you have equity in your property, this will be taken into account in your IVA terms.
The Year 4 Equity Release Clause
Standard IVA terms for homeowners typically include an equity release clause in year 4. This requires you to attempt to release equity from your property — up to a maximum of 85% loan-to-value (LTV) — to make an additional lump sum payment into the IVA.
For example, if your home is worth £200,000 and your mortgage is £140,000, you have £60,000 of equity. 85% of £200,000 is £170,000, so the maximum equity you could be asked to release is £30,000 (£170,000 minus the £140,000 mortgage).
What If You Can't Remortgage?
In practice, many homeowners in an IVA find it difficult to remortgage due to their damaged credit rating. If you are unable to release equity through a remortgage in year 4, the standard industry practice is to extend your IVA by 12 months (to 72 months total) in lieu of the equity release.
Important: The equity clause and the LTV calculation will be set out clearly in your IVA proposal. Make sure you understand these terms before you sign. Ask your IP to walk you through multiple scenarios.
Negative Equity
If your home has negative equity (you owe more on the mortgage than the home is worth), there will be no equity release obligation. Your IP will confirm this position during the IVA proposal process.
Free debt advice: For personal advice tailored to your situation, contact MoneyHelper (0800 138 7777), StepChange (0800 138 1111), or Citizens Advice — all free, all regulated.