For most people, the thought of losing their house is terrifying. The dread amplifies if you have a lot of debt and creditors start threatening to alert your landlord or to take your house through bankruptcy or insolvency.
However, most of these worries are mere rumours; therefore, you shouldn’t let your fear of losing your home prevent you from pursuing an IVA.
A financial expert will help you evaluate your ability to refinance and the equity in your home to determine whether an IVA is a good option for you.
It is often wise to stay in your home and make smaller monthly payments into an IVA than to sell your home and move into a smaller one. You will go over this with your advisor and learn about your possibilities.
The Importance of Your Home When Considering an Iva
An IVA offers allowances within your spending budget to preserve secured payments while protecting critical assets like your home from creditors. This implies that you can continue staying in your house.
This is different from:
- When you file for bankruptcy, the official trustee or receiver receives ownership of your home. The receiver or trustee must release whatever equity you may have in your house for the benefit of your creditors. Therefore, the possibility of having to sell your home exists.
- When there is no assurance of protection from legal action to recover unpaid debts through charge orders or repossessions, informal agreements for payment are made.
Creditors must therefore know the precise amount of possible equity in your property before considering an IVA to assess if it provides a better return for them than the alternatives.
The Impact of Having More Equity Than Debt on an IVA
IVA is your best option if you want to protect your house and prevent having to sell it to pay off your creditors in these circumstances. After partnering with IVA, homeowners need help to quickly sell their homes or get secured loans or mortgages to pay off their debts. This makes creditors may view an IVA as a fair payment alternative for the debt you owe.
IVA debt help advisors will assist in reviewing and advising t for those with significant equity to determine if this is the best course of action for all parties.
Calculating Equity When Considering an IVA
It’s crucial to be honest about the available equity in your property when determining if an IVA is a good option for you and your creditors. To compare what you plan to offer in your IVA to what creditors may receive should you or your creditors seek to declare bankruptcy.
The computation of your property equity will begin with a recent market valuation of your home. After deducting any secured loans, mortgages, or charges, experts will provide a value equal to 85% of the market worth. Additionally, they will consider the interests of any additional property owners, such as your husband or partner.
Releasing Equity in an IVA
Remember that when choosing an IVA to solve the unmanageable debt, creditors will nearly always agree to forgive the debt you cannot repay.
Therefore, if it is feasible for you to do so, they want homeowners to investigate the possibilities of remortgaging their home or acquiring a secured loan just before the IVA ends to realise equity. They won’t anticipate you to give up your house or take out an expensive mortgage or fast loan, either.
Understanding the criteria used to evaluate a remortgage or secured loan as part of an IVA is crucial:
- Homeowners are supposed to make reasonable attempts to unlock any equity they may have, but they are not required to sell their home or take out an expensive loan or mortgage.
- You only need mortgages and secured loans totalling at most 85% of the market value of your property will be required of you. This means that at least 15% of your home’s equity will belong to you.
Only some lenders will offer loans or remortgages at this amount. Creditors accept the amount the IVA supervisor determines as the maximum any respectable lender will provide you with.
- You won’t have to consider refinancing unless the equity in your home exceeds £5,000 using 85% of the property’s market value after subtracting any mortgages, secured loans, and third-party interests like a spouse or partner.
- The amount you repay on your new mortgage or secured loan can be approximately 50% of what you contribute to your IVA. This ensures that getting a new mortgage or secured loan won’t worsen your financial situation and will be affordable and sustainable.
In Conclusion
Before you consent to enter an IVA, you will be informed of how your property will be handled if you own your home or any other property.
Sometimes creditors will request the sale of a significant portion of your equity-holding property to boost the amount they will collect from the IVA. The IVA will be denied if you refuse to accept this, in which case you can look into other debt-relief options.
