IVA for Homeowners: Will You Lose Your Home?

Will I lose my home in an IVA?

An IVA does not require you to sell your home. Provided you keep up the agreed payments and your mortgage, you normally stay in the property throughout. The arrangement deals with your unsecured debtsUnsecured debtAn unsecured debt is borrowing that is not tied to an asset, so the lender cannot automatically take your home or car if you do not repay.Read more →, such as credit cardsHow Credit Cards Work in the UKHow UK credit cards work: interest, APR, minimum payments, interest-free periods, fees, Section 75 protection and how to use a card without getting into debt.Read more → and loans. Your mortgage is a secured debtSecured debtA secured debt is borrowing that is tied to an asset, usually your home, which the lender can sell if you do not keep up the repayments.Read more →, so it is not written off and you must carry on paying it in full and on time. If you fall behind with your mortgage, your lender can still take action to repossess, regardless of the IVA.

Equity and why it matters

Equity is the difference between what your home is worth and what you owe on it. If you have equity, your creditorsHow to Deal with Creditors: Communication and NegotiationPractical advice on communicating with creditors, negotiating affordable repayments, and understanding your rights when dealing with the companies you owe.Read more → will want to know about it, because they would receive a share of it in bankruptcy. In an IVA the practitioner has to take your home's value into account when the proposal is drawn up, and creditors may expect a return that reflects the equity you hold.

In many arrangements, homeowners with equity are asked to try to release some of it towards the end of the term, for example by remortgaging. If you cannot remortgage, the arrangement may be extended for a period instead, so that more can be paid to creditors. The terms differ between agreements, so ask your practitioner exactly what the proposal says about your property.

What the process usually looks like

1. Valuation: The practitioner asks for the value of your home and the outstanding mortgage.
2. Proposal: The proposal sets out your monthly payments and what you will do about equity.
3. Creditor vote: Creditors holding 75% of the debts must agree for the IVA to start.
4. Regular payments: You pay your mortgage and your IVA contributions.
5. Review near the end: You may be asked to try to release equity, or to extend the term.

Mortgage payments and your lender

Tell your mortgage lender you have an IVA if the terms of your mortgage require it, and check the effect on your product. Many lenders allow you to stay on your current deal. If your mortgage deal ends during the IVA, finding a new one can be harder, because lenders may not offer their best rates. Make sure you understand what will happen when your fixed rate ends. Our guides on how to remortgage and fixed vs tracker mortgages explain the options.

Risks to watch for

• Falling behind on the mortgage: This is the biggest danger. It is a priority debt.
• Rising rates: A higher mortgage payment can make the IVA harder to afford. Ask what happens if your costs go up.
• Property values: If your home loses value, your equity changes. If it rises, creditors may expect more.
• Failing to release equity: Some agreements treat this as a breach if you do not make a genuine attempt.
• Fees: Costs come out of your payments. See IVA costs and fees.

Alternatives for homeowners

Because you own a home, you may not qualify for a Debt Relief Order. The other main options are:

• A debt management plan, which is informal and flexible, but not legally binding
• Negotiating directly with creditors
• A debt consolidation loan, which carries risks, especially if secured on your home. See debt consolidation
• Bankruptcy, which can affect your home and is usually a last resort

Getting independent advice first

Before you commit, speak to a free adviser at StepChange, National Debtline or Citizens Advice. They can tell you what the arrangement might mean for your home without selling you anything. If you do go ahead, ask the practitioner to explain the equity terms in writing, and take time to understand them. Our main guide to the Individual Voluntary Arrangement covers the wider process.

A worked example

Suppose your home is worth £250,000 with a £170,000 mortgage, so you have £80,000 of equity, and you owe £30,000 of unsecured debt. A creditor looking at bankruptcy would see that your debts could be paid from your equity. The IVA proposal would reflect that, perhaps by asking for monthly payments plus a review near the end to see whether you can remortgage to release some equity. If you cannot, the term might be extended. If your equity is small or non-existent, the focus is on your monthly payments instead. The example is only an illustration: the right approach depends on your property, your income and what your creditors will accept.

Questions to ask about your property

Ask the practitioner how the home is valued and who pays for any valuation, what the proposal says about equity, what happens if you cannot remortgage, and whether the term can be extended. Ask what happens if house prices fall, and what happens if you want to sell during the arrangement. Get the answers in writing, because these terms can shape the whole IVA.