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Can I Get Equity Release With an IVA?

An IVA (individual voluntary agreement) is a type of repayment plan for people who are at risk of bankruptcy in England and Wales (1).

With an IVA, you can make monthly payments of outstanding debt over a period of up to five years. You could alternatively choose to pay back a lump sum of money. As the repayments are calculated based on affordability, you do not have to get into more debt to pay back the money.

When you have an IVA, you have to commit to the payment(s), which means notifying the IVA company when your income changes.

The company has a duty to stick to the monthly payment plan, which means you can trust that they will not charge interest on the money, increase the payment, or pressure you into repaying more.

The benefits of an IVA

The most obvious benefit of an IVA is the fact that you can get out of debt in an affordable way. Your finances are taken into account when the repayment plan is established, so you will not be charged an unfair amount of money.

This is especially comforting at the moment, given many people are struggling with the cost-of-living crisis.

By the end of the IVA scheme, if you have still not repaid the full debt, the IVA will be taken off your credit file. This means you will not be penalised for being in debt, and it will be easier for you to qualify for traditional loans.

If you owe money with your partner, you can opt for interlocking IVAs in some instances. This is sometimes much easier than dealing with the debts independently.

It can also be fairer, as it allows for repayment based on income, rather than total amount owed.

Finally, with an IVA, you can still preserve your savings for retirement. Your personal pension pot is rarely affected when you get an IVA, and even if it is, you will usually get to keep the majority of it. This can make a huge difference to your financial situation in later life.

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The drawbacks of an IVA

It is expensive to get an IVA, as it comes with many fees. You have to pay for an insolvency practitioner, pay the IVA company, and pay a handling fee whenever you make a repayment. If your debt is shared with your partner, it can be difficult to get an IVA.

We have explained that interlocking IVAs are possible, but they could be criticised for being more complex than they need to be.

Some people avoid IVAs as it negatively affects their credit record, which can have a long-term impact on their finances.

It takes a long time to rebuild a solid credit report, so this is enough to put some customers off getting an IVA. However, as an alternative to bankruptcy, it can be life-changing.

Finally, as we have discussed, you must inform your IVA provider if your income changes over the course of your repayment plan. This means that you could have funds taken away at a time when you desperately need them.

For example, if you inherit money after a loved one’s death, your creditor could take this money to cover your debt.

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Which debts are covered by an IVA?

It is important to note that IVAs do not cover all debts. You will not be able to get an IVA with an insolvency practitioner for student loans, child support arrears, or TV licence arrears.

However, the vast majority of debts can be handled with an IVA, including debts to loved ones, gas and electricity arrears, and overdrafts.

If you do not know whether your debt could be resolved with an IVA, we recommend seeking debt advice so that you know what your options for debt solution are.

What is Equity Release & How Does it Compare to an IVA?

Equity release is when a homeowner releases funds from their property for various reasons, from repaying traditional loans to getting a second home. They can do this with various equity release plans, but the most common equity release options are lifetime mortgages and home reversion plans.

One similarity between equity release and IVAs is that they help people to get out of debt. However, the IVA scheme does this exclusively, whereas equity release can be pursued by someone who is not in debt.

What’s more, equity release offers money over a much longer period, as the customer usually stays with the provider until they die or go into care. This is different from an IVA, which usually lasts just five years or less.

Another similarity is that couples can get involved with either of these schemes. With an IVA, you can get interlocking plans, and with equity release, you can both be named on the plan.

However, equity release is more compatible for couples, as it is not a case of combining individual loans, but of sharing one equity loan.

Both schemes have experts who can help you to navigate debt repayment in a legal manner.

Within the equity release scheme, this is equity release advisers who are regulated by the Equity Release Council (ERC) and the Financial Conduct Authority (FCA). For the IVA scheme, it is insolvency practitioners.

Finally, these schemes can both establish secure finances for people in retirement. However, an IVA does this by handling the debt over a short period of time, and the customer does not have to be of retirement age to do this.

On the other hand, equity release is mostly intended for people in retirement, and it has a significant impact on an individual’s financial situation after they leave work (as the loan is often so large).

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Can I Get Equity Release With an IVA – The Short Answer

If you are currently in the process of paying off debt with an IVA, you will most likely be rejected as an equity release consumer. It is worth checking this, as sometimes you could take out equity with a certain provider and plan.

For example, if you are coming to the end of your IVA repayment plan, it is more likely that you would be considered for equity release.

When your time as an IVA customer is over, you are entitled to release equity, as long as you are at least 55 years old and your property is worth £70,000 or more.

It is important to mention that you could release equity with an IVA if your IVA provider specifically asks you to do this as part of the equity clause.

For example, if you have nearly completed your time as an IVA customer but you are still in debt, the provider may ask you to take out some money from your property to increase the amount of repayment.

This is different from taking out equity for your personal finances, as it would be carried out as a way to repay your IVA debt.

This means you would not necessarily get lots of equity release funds, as the loan would immediately go to your creditor, and you would only receive any remaining funds.

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How Can I Get Equity Release With an IVA?

If your IVA company has asked you to release equity, you will need to work out how much money could be released through this scheme.

You can do this by using an equity release calculator to get a general idea. Then, you will need to get a house valuation, and offer proof of debt relating to your property.

After the official valuation, if the provider confirms that they would like you to take out equity, you can get started with the process just like any other customer does.

It is best to find a professional equity release adviser, a financial adviser, and a solicitor, and meet with each one to explain your intentions behind releasing equity.

These equity release specialists will show you how to take equity from your property, by introducing you to the equity release application form and giving you tips on how to fill it out accurately.

What Are the Risks Of Getting Equity Release With an IVA?

Firstly, you may not release a huge amount of money from your property. This could mean that you do not cover your original debt, and on top of this, you get into even more debt (through equity release).

Although this debt does not need to be paid back until you pass away, it still influences the amount of inheritance you can leave.

In this situation, you may regret releasing equity, as you could have raised the money in a different way that did not lead to long-term debt.

Secondly, if there is only a small amount of money left to repay, it is a huge commitment to release equity, knowing that you will stay on this scheme for a long time after completing your IVA payment plan.

Releasing equity could affect your future finances in a negative way; for instance, it has the potential to remove your entitlement to means-tested state benefits.

That being said, you often do not have a choice when it comes to releasing equity with an IVA.

If your provider is demanding that you do this, you cannot weigh up the pros and cons; you must simply agree to it. It is part of the equity clause that you agree to when you get an IVA.

There are ways to keep the risk low, such as using any spare income to repay the debt, releasing the smallest amount possible from your property, and securing inheritance protection for your loved ones.

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Can I Get Equity Release With an IVA – FAQs

Below, we provide answers to frequently asked questions around this important topic:

1. How much equity will I need to release?

The maximum equity you will have to release is 85% of the total equity. The exact figure you will be asked to take out will depend on many different factors, such as the amount of equity you have in your home, the regulations of your IVA provider and equity release provider, and the amount of outstanding debt in your home.

Fortunately, if you do not have much equity in your property, IVA providers will not tend to ask you to pursue equity release, as per the equity clause rules. If you have less than £5000, they will be forced to consider other options for repayment.

2. Are there any regulations for IVA and equity release?

You can be confident that any regulated IVA provider will have to stick to certain rules when it comes to asking you to release equity.

The standard terms include:

  • They will not be able to ask for more than the amount of remaining debt (as well as any additional costs involved in IVA)
  • They will have to allow you to fund equity release fees with your loan
  • They cannot charge more than 50% of your current repayment (to ensure the new repayment plan is not significantly more expensive)
3. When will I be asked to release equity?

It is rare for IVA clients to be asked to release equity at the start of the scheme. This is because they will follow a strict debt management plan that allows them to repay as much money as possible without getting into a precarious financial situation.

However, if a client is getting to the end of the scheme and plenty of debt is unpaid, the provider may step in and suggest equity release.

This usually happens after around four and a half years, which is six months before the scheme ends. This leaves enough time for the customer to arrange equity release.

4. Can my home be taken from me?

No, your property will not be taken away if you cannot manage to repay the debt in full. If there is not enough equity in your home to satisfy your IVA provider, you will not have to get involved with equity release.

If you do pursue equity release, your home cannot be taken from you. You will still be the homeowner, and you will be able to stay in your property for as long as you wish.

However, there are some standard terms you will have to follow, such as not renting out your home, and not moving house (unless you have downsizing protection).

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5. What happens if I have not repaid the full amount after five years?

Your IVA provider will be aware that your payments are insufficient long before the end of the payment plan, so you don’t have to worry about being asked for a lump sum payment on the last day of your plan.

As we have explained, around six months before the end of your plan, you may be asked to release equity to cover the remainder of the debt.

Other potential requests could be for you to remortgage your property, get a traditional loan (e.g., a credit card), extend your IVA, or borrow from a family member.

If you opt to extend your IVA, it can usually be extended by a full year. This gives you more time to get the money, but it is only an option if you have a regular income to support you over the next 12 months.

6. What happens if I am rejected by an equity release company?

If no equity release companies will approve your application, you will have to find another way to get the money for your IVA. However, for customers who do not have the means to do this, it is likely that your IVA will be extended by a year.

7. Can I remortgage or get a secured loan instead of releasing equity?

This is the IVA provider’s decision to make. Remortgaging or getting a secured loan can be a sensible option for clients with minimal debt left over, as they can be quicker to organise, and they often lead to fewer long-term consequences.

However, it is often easier to get access to more money with equity release, so your provider may prefer this option.

It is also much easier to qualify for equity release when you have a history of debt, whereas remortgaging or getting a traditional loan comes with plenty of affordability checks. Most mortgage lenders are not happy to lend money to people in significant debt.

8. Can I leave equity release after an IVA?

Yes, you can leave equity release once you have repaid your debts. However, this is usually not a good idea. You would have to pay an early repayment fee unless you had made a prior agreement with an equity release lender, and this could lead to further debt.

It would also be very difficult for you to lend money with most other schemes, due to a poor credit rating, so leaving equity release may be something you regret further down the line if you are having financial issues.

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Get Help With Equity Release

If you have been asked to release equity by your IVA provider and you don’t know where to start, we are here for you. Our expert team can explain the rules of releasing equity with an IVA, which will help you to know your rights as both an IVA customer and an equity release consumer.

We understand that releasing equity for an IVA can leave you in a vulnerable financial position, so we are here to give you tips on how to get by in these circumstances.

We will point out any loans, benefits or grants that you are eligible for, so that you can put these in place before releasing equity. We are experts in boosting retirement income as sustainably as possible.

To become an equity release consumer, you simply need to fill out an application for the plan you would like. We can help you with this if you get in touch on 0330 058 1579.


[1] Clearing your debt with an IVA

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