Fall in property values complicates IVA equity release

Debt solution website IVA.com is now taking calls from worried debtors who are approaching year four of their IVA when the terms of their contract state that they are obliged to release equity from their property – but the property slump has drained those resources dry.

For many, the only option on the table is to extend the IVA for another year to a total of six – a grim prospect after four years of living on a very tight budget

"When property prices were buoyant the strategy of using equity to fulfil the terms of the contract was a viable option for many people signing up to an IVA," said IVA.com director Terry Balfour.

"But since then the unforeseen drop in house prices has removed this vital safety net for many and they face renewed misery just at the time when they thought the end of their arduous journey was in sight.

"I would urge those in IVAs to check their original proposal to find out whether they have agreed to pay a dividend total.

"If they have, that total must be reached by any means. If they can’t release equity from their property, another year’s extension is the only way to complete the IVA and discharge the debt."

Newly insolvent people considering signing up to an IVA who have mortgages need to ensure they are fully aware of what their options are so that they don’t face an unexpected shock at the end of the five-year agreement.

"A good insolvency practitioner will know the best way to protect the client’s mortgage whilst fulfilling the demands of the creditors," said Balfour.

"They may suggest switching to an interest only deal to free up funds for a higher monthly repayment. This will make them a more reliable proposal to creditors and increases their chances of seeing the deal through to completion."

He added: "The effects of the property slump on debt solution strategies should be a lesson to all concerned that nothing can be taken for granted and the best insolvency practitioners will know this."

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