equity calculation

[mal189]

Please can anyone help me... I am not happy with the equity calculation explanation given to me by Payplan (please see below) Can anyone tell me if this is correct at all? Also they have added the secured loan to the wrong property!! It should have been added to the calculation the the first house valuation.

many thanks

Mal

1st house

House valuation: £90,000.00

Mortgage redemption statement £65,698.00





1st Owner Equity at 100% £ 24,302.00

1st Owner Equity at 85% £ 20,656.70



Total 85% LTV £ 10,802.00

Clients 85% LTV £ 10,802.00

Current LTV Borrowings 73.0%




2nd House

House valuation: £135,000.00

Mortgage redemption statement £121,105.74

Secured loan £7,906.71





1st Owner Equity at 100% £ 5,987.55



1st Owner Equity at 85% £ 5,089.42

2nd Owner Equity at 85% £ -



Total 85% LTV -£ 14,262.45

Clients 85% LTV -£ 14,262.45

Current LTV Borrowings 95.6%





In regards to the calculations you would take your mortgage statement away from the house valuation this would leave then minus your 15% leave the 85%.

As you can see both properties have over the £5,000.00 so as you are unable to re-mortgage, we are aware your mortgage providers will not re-mortgage for clients whilst in an IVA, therefore 12 payments in lieu have been added to your IVA.

[Foggy]

It all depends on what terms and conditions your IVA is under and the version. If it is 'Protocol Compliant' ( it should say this on the front of your proposal ), there will be a version by year: 2014, 2016 etc.
The 2014 version (which many still use) has an example calculation in Annexe 6.
So you need to establish what version Ts&Cs they are using. It would appear from their website that they are using the 'new' interpretation the other 'big boys ' are turning to, so, I am guessing will have altered their proposals to suit. This was started a few years ago by Aperture. Initially they did back down when challenged (if the proposal made reference to Annexe 6 especially). But the badly written clauses can be interpreted as they are now doing and, these days, they stand their ground, even though this is against the intended meaning of a clause they, themselves ( when they were Grant Thornton) had a hand in writing !
The 'Annexe 6 calculations are those we both used in your earlier post ... which resulted in vitually no equity.

This is from their website:

How much of my share of the equity will I need to try to release?

You will never be expected to try to release all of your share of the equity in your property, because the calculations are based on 85% of your interest in the property.

Here’s an example: Bob is a homeowner in an IVA. His property is currently worth £150,000. His outstanding mortgage is £75,000. He also has a secured loan on the property, with £25,000 outstanding.

Current property market value: £150,000
Minus outstanding mortgage: -£75,000
Minus outstanding secured loan: -£25,000
Bob’s interest: £50,000
85% of Bob’s interest: £42,500
Maximum equity that Bob could be asked to contribute to the IVA = £42,500

In the above example, Bob’s total equity in the property is £50,000, but he can only be asked to contribute a maximum of £42,500 to pay into his IVA.

If Bob is unable to obtain further finance on his property, or arrange for a third party to contribute this amount into the IVA, he would instead be able to make 12 additional monthly contributions into the IVA. For example, if Bob’s monthly IVA contribution was £200, he would simply need to pay £2,400 into the IVA over twelve months. After this time his IVA would successfully complete, providing he has met all his other IVA terms and conditions.

[Foggy]

Mal -- I have been doing some digging and there is an excellent article here, with links to various documents: https://debtcamel.co.uk/iva-equity-release/

[mal189]

Hi Foggy

I really appreciate your feedback and time...

Please find below the details from my equity clause in my contract...

1.19 For the purposes of my proposal, I have included an amount representing 85% of my current interest in the
properties.
In month 54 of my arrangement, (normally 6 months from the end of the arrangement) an open market valuation
will be carried out on the property by an independent professional valuer.
If that valuation shows that 85% of my interest in the property (after deducting my share of the mortgage and/or
secured loans referred to above) is less than £5,000 (net of all costs to take out a new mortgage) then I need
contribute no more to the arrangement in respect of the property.
If that valuation shows that 85% of my interest in the value of the property (after deducting my share of the
mortgage and/or secured loans referred to above) is £5,000 or more (net of all costs to take out a new mortgage
loan), then I will seek to remortgage my interest in the property and introduce this money into the arrangement.
However, the amount that I have to borrow and pay into the arrangement is subject to the following limits:
· The remortgage amount will be a maximum of 85% of my loan to value (LTV).
· The incremental cost of the remortgage, including cost of any new repayment vehicle, will not exceed 50%
of the monthly contribution at the review date.
· The net worth released will not exceed 100p in the £ excluding statutory interest.
· The remortgage term does not extend beyond the later of my State retirement age or the existing mortgage
term.
· The amount of the money introduced into the arrangement will be the mortgage proceeds less the costs of
the remortgage, including any costs to redeem any existing mortgage and/or secured loan.
· The increased amount that I have to pay because of the remortgage will be deducted from the remaining
monthly contributions in the arrangement.
· If the increased amount that I have to pay at any time following the remortgage means that the required
contribution to the arrangement falls below £50 per month, monthly contributions are stopped, and the IVA is
concluded.
I will provide a broker or prospective lender with my written consent authorising them to keep my Supervisor
fully informed of progress throughout the re-mortgage process.
If I am unable to obtain a new mortgage, this will not be viewed as a failure to comply with the terms of the IVA
and my Supervisor will have the discretion to consider accepting one of the following alternative proposals:
· A third party sum equivalent to 85% of my interest in the property, or
· 12 additional monthly contributions (with the aggregate sum paid to the supervisor being limited to 85% of
my interest in the property).
Protecting creditors interests
(where applicable) To protect the interests of creditors my Supervisor will register a restriction against the
property at HM Land Registry. To facilitate this, I will provide the Supervisor with a signed form RX1 within 3
months of the approval of the IVA.

So how do you interpret the above to how they have calculated the equity Foggy?

thank you so much again.....

[Foggy]

That is the wording from annexe 6 of the standard terms and conditions. In the 2014 version it is accompanied by an example calculation ( which is in line with the one I used in your earlier post).. In the 2016 version there is no example calculation, which has allowed the 're-interpretation' ....there is reference to example calculations at annexe 7, however, I am unable to actually find an annexe 7 on any copies I can locate!

The wording in both 2014 and 2016 versions are the same, save for the reference to the example calculation. I do not think there has been any material change, as such, just that the (some) IPs are interpreting the release clauses in a slightly more avaricious way (to their benefit as well as that of the creditors).

Which version of the Protocol are you (they) using ? Judging by the timing it would be 2014, in which case I would refer Payplan to The Straightforward Consumer IVA Protocol 2014 version, with attached calculation example at Annexe 6, which you can find here: https://www.gov.uk/government/publicati ... a-protocol (last two pages : 46 & 47).

[Fizper]

Guys,

It makes a difference when you do the 85% calculation.

If you do it before taking the mortgage and loan off the house value then you get £1447.65.

If you take the mortgage and loan off first then you end up with £6968. This is using the example calculation.

[Foggy]

Guys,

It makes a difference when you do the 85% calculation.

If you do it before taking the mortgage and loan off the house value then you get £1447.65.

If you take the mortgage and loan off first then you end up with £6968. This is using the example calculation.

This is the crux of the matter Fizper. The historically used method took 85% of the market value, then deducted mortgages etc. to give the lower figure. But then the clause was re-interpreted as 85% of the equity (which, in truth, it could be) to give a higher figure.

This totally alters the spirit of the original clause and I would advise any home owner to get a sample calculation, in writing, from any prospective IP, so there are no surprises --- personally I would walk away from any IP using the re-interpreted method.

[mal189]

Great thanks Foggy will keep you posted...

[mal189]

Hi Foggy

Please see the email I have just received from Paplan.. If you have got any further advice and can help me in anyway it would be really appreciative. Thanks



Thank you for your email, I have recalculated the equity with the secured loan please see below;



House Valuation £90,000.00

Number of owners : 1

Mortgage £65,698.00

Secured Loan £7,906.71





1st Owner Equity at 100% £16,395.29



1st Owner Equity at 85% £13,936.00



Total 85% LTV £2,895.29

Clients 85% LTV £2,895.29

Current LTV Borrowings 81.8%



We are aware of the contents of the 2014 IVA Protocol however your IVA is not subject to that Protocol. This is because the IVA Protocol is designed for individuals whose circumstances meet certain criteria. As you have an investment property, you did not meet the criteria when your IVA Proposal was drafted. It should also be noted that the 2014 Protocol has since been replaced by a 2016 version which does not include an annex with example equity calculations because there were issues with the examples which led to their removal.



The reason you are required to make 12 additional contributions in lieu of equity is that 85% of your interest in the properties amounts to £5,000 or more. Your interest means your share of equity and 85% of that is £5,000 or more in respect of both of your properties. Only where 85% of your interest is less than £5,000 are you not required to make any additional contribution to your IVA as set out in the following sentence of the clause:



“If that valuation shows that 85% of my interest in the property (after deducting my share of the mortgage and/or secured loans referred to above) is less than £5,000 (net of all costs to take out a new mortgage) then I need contribute no more to the arrangement in respect of the property.”



As set out in your equity clause, where 85% of your interest is £5,000 or more, you are required to attempt to re-mortgage, subject to limits set out in the clause. As you rightly point out, one of those limits is that any re-mortgage should not increase borrowings to any more than 85% loan to value. 16 Neptune Terrace is already at 85% loan to value. 5 Barras Terrace is just short of that.



It is not relevant that the difference between existing borrowings on Barras Terrace and 85% loan to value is less than £5,000 as the reference to 85% loan to value relates purely to the amount you would need to try to release via re-mortgage. There is no mention of a £5,000 minimum re-mortgage amount in the clause where the different limits to any re-mortgage are set out.



85% loan to value and 85% of your interest are different amounts and are subject to separate calculations.



We are happy that you do not attempt to release the difference between existing borrowings and 85% loan to value from Barras Terrace which amounts to £2,895 as we are aware that your existing lender do not offer re-mortgages to customers subject to an IVA but that does not change that 85% of your interest (your share of equity) is £5,000 or more in respect of both properties.



In such a scenario your equity clause gives you the following options:



“If I am unable to obtain a new mortgage, this will not be viewed as a failure to comply with the terms of the IVA and my Supervisor will have the discretion to consider accepting one of the following alternative proposals:

· A third party sum equivalent to 85% of my interest in the property, or

· 12 additional monthly contributions (with the aggregate sum paid to the supervisor being limited to 85% of my interest in the property).”



We have assumed you are not in a position to take up the first option which would require you to make a significant lump sum payment and so have asked you to take the second option, which will see you contribute significantly less in lieu of the equity in your properties.

[Foggy]

I could 'nit pick' their reply, but, at the end of the day, they are technically correct. If your IVA is not, as they say, protocol compliant our arguements go out of the window anyway !

The 2016 version still does refer to these example calculations, but, as I have said before, they are simply not there ... whether this is an error or some subterfuge I cannot say, but this re-interpretation is, in my view, very underhand and yet another reason I would not recommend Payplan at all.

This I am afraid, does not help you and I am sorry that I am out of ammunition !

[mal189]

Foggy, no worries you have been a great help and thank you once again for your time in this matter.

I have now enquired about a lump sum pay off to finish this IVA once and for all with them!