IVAs for Homeowners
This description of an IVA is specific to people who own property.
It relates to protocol compliant IVAs, where the applicant holds ownership of a property, either in part of in full, whether they be mortgaged or unencumbered.
This type of IVA still contains all the standard terms and conditions of a non-homeowner style IVA, such as legal protection from creditors and still provides the potential for some debt write-off.
But, in addition, it includes a particular clause within the IVA proposal called the ‘Equity Clause’.
The equity clause describes how equity held within a property is identified, quantified and then dealt with, under the terms of the IVA .
IVA with Equity after 01st July 2025
On 01 July 2025 the IVA Standing Committee delivered an update to the IVA protocol, which introduced sweeping changes as to how the equity in a customer’s home should be evaluated and then treated when they propose an IVA to their creditors.
The purpose of the changes were:
- To simplify how the level of equity is evaluated.
- To clarify what level of equity would trigger the clause.
- To simplify the actual equity clause itself.
Evaluating the Level of Equity
The new approach to equity has removed the burden from an applicant to try and release equity from their property through a remortgage or secured loan, as was previously the case.
Instead, a simple determination is now made at the beginning of the IVA to evaluate the amount of equity an applicant owns.
The level of equity owned is calculated using 85% of the property’s value and subtracting any secured borrowings, like a mortgage and any other owner's share from that value.
If their share of equity is determined to be below £10,000, the IVA will be proposed at 60 monthly payments, in line with a standard non-homeowner IVA.
If their share of equity is determined to be above £10,000, then a 12 month extension is triggered.
Triggering the 12 month Extension
Equity above £10,000 invokes an automatic additional 12 monthly payments into IVA, extending the IVA from 60 monthly payments to 72 monthly payments.
The extra payments are made in lieu of all the equity in the property and any future interest in the property’s equity is thus excluded from the IVA.
This determination is carried out before the IVA commences and there is no further requirement to re-value the property at any time during the IVA.
High Levels of Equity
In circumstances where the applicant’s property has very high levels of equity, then a protocol IVA is unlikely to be appropriate, and a bespoke IVA will need to be considered, alongside other, potentially more suitable, debt solutions.
IVA Equity Clause for IVAs Pre 30th June 2025
The changes detailed above have replaced the older equity clause found in homeowner IVAs that started on or before 30th June 2025.
Before the changes, in cases where the IVA applicant’s equity was determined to be less than £5,000 before starting, the IVA would be proposed to conclude at 60 months.
In cases where the applicant's equity had been determined to be greater than £5,000 their IVAs were proposed with 6 years duration, with a commitment to refinance their property towards the middle of the IVA’s 5th year and, if successful, allowing the IVA to concude at that point.
There was an obligation to value the property independently, at around month 54 of the arrangement to establish whether there is any equity within the property.
There were also predetermined limits to the amount of equity to be released, set at 85% of the overall value of the property and, naturally, only equity share of the IVA applicant was to be considered.
There were other factors that limit creditors’ expectations, too.
- The extra cost of the remortgage, i.e. the increase above current mortgage cost, must not have exceed 50% of the current IVA contributions.
- You would not be expected to repay more than your original debt, excluding statutory interest.
- The repayment term did not extend beyond the latter of either your retirement age or the existing mortgage term.
- The costs of the remortgage, including any redemption penalties, would be deducted from the funds to be introduced into the IVA.
- If the extra cost of the remortgage was such that the affordability of the IVA contribution fell below £50, the IVA would be concluded with the introduction of the released funds.
In the event that a remortgage could not be obtained, for whatever reason, the IVA would conclude after its 6th year, as proposed.
Talk to us
If you co-own a property and you are concerned about the equity release clause, you should contact the team here at IVAorg
We have years of experience in helping people come to understand the equity clause and how it will be applied to their personal circumstances.
Please call our helpline on 0800 856 8569 to arrange a free consultation with one of our IVA consultants, now.
