Equity Release

[jordan22]

When your IVA is setup,are you made aware of how much you have to release in year 4?

How is the Equity Release normally worked out?

[luluj]

Your chairmans report or proposal document should give you an indication of the target amount.

[MelanieGiles]

It does depend upon the wording of the IVA agreement, however the norm these days is for the property to be revalued during the final year, and for you to seek further mortgage borrowings based upon 85% loan to value. The monies raised are to be firstly used to repay your existing mortgage, with any balance then payable into the IVA.

[jordan22]

Hi Melanie

If you owed £75000,and the creditors agreed 40p in the pound,and you paid £300 for 60 months,that would be £18k paid back,would your equity release be for £12k?

I know there are fees to be included aswell.

[pbeck]

It still depends on the wording of your IVA, but it's unlikely that creditors specifically agreed to get 40 pence in the pound, what's more likely is that they agreed to you paying £300 for 5 years and release of equity in your property up to a certain percentage (these days usually 85%). What that means is that if property prices shoot up then the creditors will get a bigger dividend as you'll have to remortgage for more, but most IVA proposals these days are written so that the increase in your mortgage payments as a result of the remortgage will not come to more than 60% i.e. £180 per month of your regular IVA payments.

The dividend of 40p in the pound is not likely to be an agreed figure, more a forecast of what they could get depending on the payment rate, the amount of debt, and the amount of equity in the house.

[MelanieGiles]

Would just like to point out that the new mortgage payments are based on 50% of the current IVA contribution not 60%.

[pbeck]

I stand corrected !

[Andrew Graveson]

Hello Philip and Melanie,

How are you both accomodating the fact that there isn't a mortgage lender in the land offering more than 80% loan-to-value to someone in an IVA right now?

Has this affected creditor response as their likely recovery levels are diminished?

[MelanieGiles]

I think that most IPs suffer the equity release clause, and certainly under the new IVA protocol there is provision for what happens if equity cannot be raised. If there are no lenders to lend, then debtors will legitimately be able to say they are compliant with their IVA and their property will be left untouched.

From my perspective, I believe that the markets will recover over the next few years, and maybe a couple of the lenders will see lending to people who have had difficulties in the past, but who have an impeccable record of paying their IVA for the last four years are good business. But who knows during these very strange times.

[Andrew Graveson]

You would think so, especially as many people who choose IVA's do so to protect their homes and are highly motivated to pay their mortgage on time every month.

Strange times indeed....and an opportunity for a smart lender.