Will an IVA affect my Mortgage?

 

 A home equity loan and a mortgage could be affected by an IVA. Find out more about an IVA by reading our article or by filling out the form. Find out how an IVA affects your Mortgage.

Will an IVA affect my Mortgage?

In an IVA, you and your unsecured creditors will agree to repay a part of your debt over a limited period - usually five years, although it can be shorter.

As long as an IVA is in place and payments are made to creditors, they are expected to receive total contractual repayments on their secured loans. Provider your mortgage in full if you have one.

During this time, any unsecured creditors receiving unsecured loans from you do not receive a dividend. Dividends can vary in size. It can depend on whether you can pay your unsecured creditors and whether they are willing to accept what you offer. An individual voluntary arrangement (IVA) can only be approved if over 75% of your unsecured creditors (measured in £) agree to it. Generally, dividends range between 20p and 40p per share, although they can be considerably less or more. The UK legislation allows unsecured creditors to receive up to 100p in the £ on top of statutory interest.

You are not required to get your unsecured creditors' approval when you offer them an IVA. They may propose modifications to your IVA if they believe you can make greater contributions than you initially offer, which may result in an increase in your monthly contributions, or indeed they can extend the term of your IVA for a period of perhaps six months.

An IVA Can affect your mortgage equity

Unsecured creditors will not ignore the fact that you have a mortgaged property. To determine the value of your property, they will look at both its current market value and the amount you currently owe to your mortgage provider. To qualify for a mortgage, you must provide a fair market valuation of the property. Furthermore, your mortgage provider will be required to provide you with a current mortgage redemption statement showing the total cost of clearing your mortgage, including any early redemption penalties.

Your creditors can quickly determine whether there is equity in the property with these two pieces of information. You may be required to remortgage your property during your IVA if there is equity in it, and to incorporate some or all of any released equity into your IVA by your unsecured creditors by a modification to your proposals.

In a well-drafted IVA proposal, re-mortgaging the property and offering equity to creditors are already included. Nonetheless, it may be that remortgage is not an option for you because no mortgage provider will take you on because of your poor credit history. You may, on the other hand, be required to pay a premium mortgage rate when remortgaging the property.

Unsecured creditors consider the size of monthly mortgage payments even if the property has no equity. If they are excessive, creditors may propose a modification. Your IVA contribution can be increased by selling your property and moving to rental accommodation. Excessive mortgage payments are usually defined as mortgage payments greater than 40% of net family income. It should not be surprising to find that an unsecured creditor would propose such a modification if rental accommodation costs significantly less than monthly mortgage payments. 

The value of properties has dropped sharply in recent years, and many people are now in negative equity. Simply put, they are being charged more (sometimes substantially more) to redeem their mortgage than their property is currently worth. If forced to sell, the mortgage provider's shortfall would now become an unsecured debt and would rank with other unsecured creditors for dividend purposes, thereby depressing the dividend in an IVA.

You should bear in mind that your spouse or partner may have an equitable interest in the property you own. A 50% equity interest is common in many cases. A forced sale might be difficult for creditors, at least if your family has rights of residence in the property. Thus, an IVA can surely affect your mortgage. However, the good news is that in most cases, debtors are not likely to lose their homes.

How your mortgage might be affected in an IVA

Our advisors at McCambridge Duffy can help you if you are considering an IVA and are concerned about how it may affect your mortgage. If you are considering an IVA, we will be able to provide you with free and confidential advice. As part of our in-house insolvency practice, we have several Insolvency Practitioners (IPs) who can assist with complex mortgage inquiries. Advice should not be paid for. If you obtain this advice from a reputable IP, you shouldn't have to incur any costs.

An individual voluntary arrangement (IVA) is one of the options available to you. Your IP will inform you of all of the options. If you do not wish to have your mortgage impacted by an IVA, there are other options you can choose. Considering a Debt Management Plan (DMP) for example would be a more informal option. Other options are also available. In light of the advice provided by the IP, you can choose the best option for yourself.

To find out more about an IVA or other financial solutions please visit our site Free Debt Help.