IVAs over recent years have become an extremely popular alternative to bankruptcy for those having
difficulties repaying unsecured debt. A question that is often asked is “Will I have to sell my home?”
The simple answer is No, but the creditors may include a clause requesting a debtor release some of their
equity during the IVA. This will of course be dependent on there actually being equity available.
Should an individual be required to release the equity, it will usually be during the 54th month of the
IVA term, or near after. Not all of the available equity is expected to be paid into the IVA. According
to the IVA protocol updated in May 2010, it is stated that "the amount of net worth to be released will
be based on affordability from income and will leave the debtor with at least 15% of his/her net worth in
the property." In the event of a remortgage, it I would be a maximum of 85% of the Loan to Value (LTV) and
the term of the remortgage will not extend beyond either the debtors retirement age, or the existing mortgage
term (whichever is later).
For example, in the case of a sole owner, where the property is worth £250,000 with an outstanding mortgage
of £180,000, 85% of the property value is £212,500. After subtracting the current mortgage, the maximum
remortgage value would be for £32,500, leaving the debtor with £37,500 (15%) of equity remaining.
Where the property is jointly owned, and assuming that the income of the 2nd individual has not been taken
into consideration for the IVA, then only the debtors share is required for equity release. So using the
same example as above but where the debtor owns 50% of the property, the value would be £125,000, with an
outstanding mortgage of £90,000. 85% of the property value is £106,250, so the maximum equity that may be
required to be released would be £16,250. This will leave £18,750 of equity remaining.
The above are just examples of how equity release may be calculated, but it is worth remembering that all
IVAs are different, and therefore different individual circumstances may lead to different outcomes. However,
the total amount of equity released should not be more than the debt remaining. An individual should always
discuss their situation with their IVA supervisor, who can also give help and advice on the remortgaging
process. No one will be asked to remortgage if the extra mortgage premium is unaffordable.
(ref: Consumer IVA Protocol May 2010www.insolvency.gov.uk)