Remortgage During an IVA

Can You Remortgage During an Active IVA?

Remortgaging during an active IVA is technically possible but comes with substantial restrictions that make it significantly more difficult than remortgaging after the arrangement has been completed. The feasibility depends on several key factors including the terms of your specific IVA, your equity position, and the willingness of specialist lenders to consider your application.

The first and most important consideration is that most IVA agreements include a clause restricting the debtor from obtaining credit of more than a specified amount, often around five hundred pounds, without the prior written consent of the Insolvency Practitioner supervising the arrangement. A mortgage is obviously far in excess of this threshold, so you will almost certainly need your IP's permission before proceeding.

Your Insolvency Practitioner will assess whether remortgaging is in the best interests of both you and your creditors. They may support the application if it would reduce your monthly outgoings, help you maintain your mortgage payments, or if there is a clause in your IVA requiring you to attempt to remortgage to release equity for your creditors.

From a lender's perspective, an active IVA represents a significant risk. It indicates that you are currently unable to repay your debts in full and are in a formal insolvency process. Very few lenders will consider applications from borrowers with active IVAs, and those that do will apply strict criteria and charge premium rates.

The number of lenders willing to consider active IVA applications varies with market conditions, but even in the most favourable markets, you are typically looking at a handful of specialist lenders rather than a wide choice. This limited competition means rates tend to be at the higher end of the specialist lending spectrum.

The Role of Your Insolvency Practitioner

Your Insolvency Practitioner plays a central role in any attempt to remortgage during an active IVA. Understanding their position and working collaboratively with them is essential for a successful outcome.

Permission to apply. Before you even begin exploring remortgage options, you must discuss your plans with your IP and obtain their formal written consent to proceed with a remortgage application. Applying without this consent could constitute a breach of your IVA terms, which could ultimately lead to the arrangement being terminated and potentially replaced by bankruptcy.

Assessment of the proposal. Your IP has a duty to act in the interests of your creditors as well as helping you manage your financial recovery. They will assess whether the proposed remortgage serves these interests. If remortgaging would reduce your monthly payments and make your IVA more sustainable, they are more likely to support it. If it appears to be adding unnecessary debt, they may decline.

Equity release clauses. Many IVAs, particularly those involving homeowners with significant equity, include a clause requiring the debtor to attempt to remortgage in the final year of the arrangement to release equity for creditors. This is sometimes referred to as a third-party equity clause or property clause. If your IVA contains such a clause, you may be required to attempt a remortgage rather than choosing to do so.

Creditor approval. In some cases, your IP may need to seek approval from your creditors before consenting to a remortgage, particularly if the remortgage would change the terms of the original IVA proposal or affect the returns creditors can expect to receive.

Documentation and oversight. Your IP will likely want to see the remortgage offer and terms before giving final approval. They need to ensure that the new mortgage arrangement does not compromise your ability to continue making your IVA contributions and that the overall financial impact is positive.

Maintaining open and honest communication with your IP throughout the remortgage process is essential. They are there to help you navigate the arrangement successfully, and working against them will only create additional problems.

The IVA Equity Clause Explained

One of the most common reasons homeowners need to remortgage during an IVA is the equity clause that is included in many individual voluntary arrangements. Understanding how this clause works and what it means for you is crucial if your IVA contains one.

The equity clause typically states that the debtor must use reasonable endeavours to remortgage their property in the penultimate or final year of the IVA to release a specified amount of equity for the benefit of creditors. The amount may be a fixed sum or a percentage of the available equity.

The key elements of a typical equity clause include:

• Timing - The remortgage is usually attempted in year four or five of a five-year IVA, giving you time to stabilise your finances and potentially improve your credit position before applying
• Maximum increase in payments - Many clauses specify that monthly mortgage payments should not increase by more than a certain percentage, often around 50 per cent, to remain affordable
• Reasonable endeavours - You are required to make genuine attempts to remortgage but are not expected to accept terms that are financially unsustainable
• Failure to remortgage - If you genuinely cannot obtain a remortgage on reasonable terms, most IVAs allow for an extension of the arrangement period, typically by twelve months, as an alternative to the equity release

If your IVA includes an equity clause, your IP will guide you through the process when the time comes. They will typically direct you to a specialist broker who can assess your remortgage options and determine whether a remortgage on acceptable terms is achievable.

If the broker concludes that you cannot obtain a remortgage without increasing your payments beyond the specified threshold, or if no lender will approve the application, your IP will usually accept this and implement the alternative provision in your IVA, which is most commonly an extension of one year to the arrangement term.

It is important not to deliberately sabotage your remortgage application to avoid the equity release. Your IP and creditors may challenge this, and it could be viewed as a breach of the duty to use reasonable endeavours. However, you should also not accept a remortgage deal that would leave you financially worse off or unable to meet your ongoing obligations.

Lender Options for Active IVA Remortgages

The pool of lenders willing to consider remortgage applications from borrowers with active IVAs is small, but it does exist. These are specialist lenders who have developed specific criteria and products for this complex area of the market.

Specialist lenders who consider active IVA applications typically look for the following:

• Substantial equity - Most require a maximum loan-to-value ratio of 70 to 75 per cent, meaning you need at least 25 to 30 per cent equity in your property
• Consistent IVA payments - A track record of making all IVA contributions on time and in full throughout the arrangement
• Maintained mortgage payments - No missed mortgage payments during the IVA period, demonstrating that you prioritise your secured lending commitments
• IP consent - Written confirmation from your Insolvency Practitioner that they support the remortgage application
• Affordable repayments - The new mortgage payments must be demonstrably affordable based on your income after IVA contributions

Interest rates for active IVA remortgages are at the higher end of the specialist market, typically ranging from 3 to 6 per cent above mainstream rates. While this sounds expensive, it may still be lower than a standard variable rate, and it can be significantly cheaper than being forced to sell your property.

Most specialist lenders offering active IVA products do not deal directly with the public. They require applications to be submitted through authorised mortgage brokers, making a specialist adverse credit broker an essential part of your team alongside your IP.

It is also worth noting that lender appetite for active IVA cases can fluctuate with market conditions. During periods of economic uncertainty, fewer lenders may be willing to consider these cases, while in more stable times, competition among specialist lenders may increase, potentially leading to better rates and criteria.

What Happens If You Cannot Remortgage During Your IVA

If you are unable to remortgage during your IVA, whether due to the equity clause requirement or for your own financial benefit, it is important to understand what happens next and what alternative options may be available to you.

IVA extension. The most common outcome when a borrower cannot remortgage to satisfy an equity clause is an extension to the IVA term. This typically means making an additional twelve months of contributions instead of releasing equity. While this extends your IVA by a year, your monthly payments remain the same and you retain the equity in your property.

Variation to the IVA. In some cases, your IP may propose a variation to your IVA terms to accommodate the inability to remortgage. This could involve increased monthly contributions, a lump sum payment from another source, or other modifications agreed with your creditors.

Staying on your current rate. If you were hoping to remortgage to reduce your monthly payments rather than to satisfy an equity clause, the alternative is simply to remain on your current mortgage deal. If you are on a standard variable rate, this may be more expensive, but it avoids the costs and complications of remortgaging during an active IVA.

Product transfer with your existing lender. Some lenders offer product transfers to existing customers without conducting a full credit search. This means you might be able to switch to a new deal with your current lender even with an active IVA. Product transfers are typically simpler and quicker than full remortgages, though the rates available may not be the most competitive in the market.

Waiting until after completion. In many cases, the most practical approach is to wait until your IVA has been completed before attempting to remortgage. While this may mean paying a higher rate in the interim, it significantly increases your options and can result in a much better deal overall.

If you are struggling with your mortgage payments during your IVA, speak to both your IP and your mortgage lender. Mortgage lenders have protocols for helping borrowers in financial difficulty, and there may be forbearance options available such as temporary payment reductions or a switch to interest-only payments while your IVA is in progress.

The most important thing is to communicate proactively. Ignoring the problem or missing payments without engaging with your lender and IP will only make matters worse and could ultimately put your home at risk.

Protecting Your Home During an IVA

For many homeowners, one of the primary concerns when entering or managing an IVA is protecting their property. Understanding your rights and the protections available to you during an IVA can provide reassurance during what can be an anxious time.

Your home is not at immediate risk. Unlike bankruptcy, an IVA does not automatically put your home at risk of repossession. Your property remains in your ownership throughout the arrangement, and the IVA itself does not give your creditors any claim over your home. However, you must continue making your mortgage payments in addition to your IVA contributions.

Equity may be required. While your home is protected from sale, any equity above a certain threshold may be considered an asset that should contribute to your creditors. This is the purpose of the equity clause discussed earlier. However, this is achieved through remortgaging to release equity rather than selling the property.

Keep up mortgage payments. The single most important thing you can do to protect your home during an IVA is to continue making your mortgage payments on time. Your mortgage is a secured debt and is not included in your IVA. If you fall behind on your mortgage, your lender can still take action to repossess your property regardless of the IVA.

Notify your mortgage lender. While there is no legal requirement to inform your mortgage lender about your IVA, many advisers recommend doing so. Your lender may be more understanding if you need to discuss your mortgage arrangements, and they cannot increase your rate or change your terms simply because you have an IVA.

Consider a restriction on the title. Some IVAs include a provision for a restriction to be placed on the title of your property at the Land Registry. This means the property cannot be sold or remortgaged without the IP being notified. While this might sound concerning, it actually protects the arrangement by ensuring all parties are aware of any property transactions.

Seek advice if you are struggling. If your financial situation changes during your IVA and you are finding it difficult to maintain both your IVA payments and your mortgage, seek advice immediately. Your IP may be able to vary your IVA contributions, or your mortgage lender may offer forbearance measures. Acting early gives you the most options.

Remember that the purpose of an IVA is to help you manage your debts and achieve a fresh start. Your home is typically the asset you most want to protect, and the IVA process is designed to help you do that while repaying what you can afford to your creditors.