IVA & Equity Release: Remortgage v Secured Loan

UpToMyNeckInIt

I know there has been some debate, and concern, that some IVA customers are being railroaded into taking out sub-prime (eg: 16-20%APR) secured loans, after being unable (unsurprisingly) to remortgage, under the terms of their IVA equity release clause.

This is pretty standard stuff if you are in an IVA and a property owner: requiring you to attempt remortgage up to 85% LTV in Month 54.

There are lots of legal arguments (with some validity I think), that most IVAs require equity release specifically via 'remortgage' not 'secured loan'. Consequently IVA customers being offered the latter, after being refused remortgage, are unhappy.

I think a lot of IVA customers take it for granted that, even if they have a lot of equity, they are unlikely to be offered a remortgage, and so assume their IVA will merely continue for another 12 Months.

Well, this issue is apparently going to escalate over the next few months, for IVA customers with significant property equity: Apparently, there are companies out there who are considering remortgage products for those in IVAs, with one such product due to be released by the Summer. The rates will be 8-9% up to a max. LTV of 75%. This could mean clients having to take a total remortgage to complete their IVAs. Clients could lose valuable SVR or tracker deals.

Whereas a small secured loan would protect them even if the rate is higher. For example: Surely it is better to borrow £5,000 at 16-20% and retain your mortgage at 2.5-4.0% rather than switching the lot to 8%.

Anyone heard anything similar?

Would love to hear from the forum experts on this issue.

Depth_Charge

UpToMyNeckInIt wrote: »

I know there has been some debate, and concern, that some IVA customers are being railroaded into taking out sub-prime (eg: 16-20%APR) secured loans, after being unable (unsurprisingly) to remortgage, under the terms of their IVA equity release clause.

This is pretty standard stuff if you are in an IVA and a property owner: requiring you to attempt remortgage up to 85% LTV in Month 54.

There are lots of legal arguments (with some validity I think), that most IVAs require equity release specifically via 'remortgage' not 'secured loan'. Consequently IVA customers being offered the latter, after being refused remortgage, are unhappy.

I think a lot of IVA customers take it for granted that, even if they have a lot of equity, they are unlikely to be offered a remortgage, and so assume their IVA will merely continue for another 12 Months.

Well, this issue is apparently going to escalate over the next few months, for IVA customers with significant property equity: Apparently, there are companies out there who are considering remortgage products for those in IVAs, with one such product due to be released by the Summer. The rates will be 8-9% up to a max. LTV of 75%. This could mean clients having to take a total remortgage to complete their IVAs. Clients could lose valuable SVR or tracker deals.

Whereas a small secured loan would protect them even if the rate is higher. For example: Surely it is better to borrow £5,000 at 16-20% and retain your mortgage at 2.5-4.0% rather than switching the lot to 8%.

Anyone heard anything similar?

Would love to hear from the forum experts on this issue.

Hi

Interesting and no doubt we will hear more soon.

The thing that puzzles me about all this is that I thought the idea of entering an IVA was to become debt free?

Secured lending, just how much would people be paying back overall in these type of situations if all this turns out to be true?

Is it something to do with the rehabilitation thing again I wonder?

Maybe the reps of the DRF & DEMSA would consider coming on here and telling us all about it?

Just my take again as always

FiatFan_2

Quite possibly those entering iva's may already have mortgage and secured loan pre-iva therefore not being able to do as you've suggested. I know when discussing this clause our advisor, he said we should hope that the house was still in negative equity by the time 54mths comes round, but not to worry about it till then.

Depth_Charge wrote: »

The thing that puzzles me about all this is that I thought the idea of entering an IVA was to become debt free?

Mortgages and secured loans are ring fenced during iva's then you still have those after the iva if they still have years to run. This was part of the reason we gave up our house, should we have to release equity we'd be back to square one of loadsa debt.

Being in a mortgaged property during an iva gives the IP a good amount of leverage to squeeze more money out of you near the end. Renting means it's a clear 60mths and your done.

Depth_Charge

FiatFan wrote: »

Quite possibly those entering iva's may already have mortgage and secured loan pre-iva therefore not being able to do as you've suggested. I know when discussing this clause our advisor, he said we should hope that the house was still in negative equity by the time 54mths comes round, but not to worry about it till then.



Mortgages and secured loans are ring fenced during iva's then you still have those after the iva if they still have years to run. This was part of the reason we gave up our house, should we have to release equity we'd be back to square one of loadsa debt.

Being in a mortgaged property during an iva gives the IP a good amount of leverage to squeeze more money out of you near the end. Renting means it's a clear 60mths and your done.

Hi

Thank you for the very fair reply

Being in an IVA can mean prolonged uncertainty the way I see it especially if you are a home owner.

Entering a debt solution should give stability, peace of mind and a clear end result.

People in IVAs are paying substantial fees to companies in good faith to act in their best interests and allow them to become debt free within a time frame.

Is this what is really happening, seriously?

PPI claims, huge percentages going to claims companies, IVA companies taking their percentages.

A fair question about IVAs in my opinion is this... are they an actual debt solution or are they a just profit making product?

How many people are just better off going bankrupt (depending on circumstances of course)

Profit and debt advice, well it can turn out to be a witches brew in my opinion and can never really be independent and impartial.

Rehabilitation, well hey, lets not keep mentioning that one, its too daft to laugh at, isn't it?

I would love the DRF people to come on here and explain that one:)

Just my take again as always

FiatFan_2

DRF? Love all these acronyms, is there a definitions thread somewhere?

I agree with you DC, from my experience being a home owner can mean a certain degree of uncertainty in the closing stages of an iva. However 54 mths is a long time and in many respects the certainty an iva does bring for that period is well worth it.

After going through a debt charity, your passed onto a different organisation for the actual iva, I don't for a minute think they are not for profit. Maybe some money feeds back to the charity, but someone will benefit from our debt, there always is.

I know we both have BR clauses in our employment so that had to be avoided, had we struggled on for longer than when we did, it may have been our only option and the consequences would have been severe.

Whilst were aiming for some sort of financial rehabilitation through our iva, things don't change over night and it can be easy to slip back to old ways, obviously avoiding credit.

Depth_Charge

FiatFan wrote: »

DRF? Love all these acronyms, is there a definitions thread somewhere?

I agree with you DC, from my experience being a home owner can mean a certain degree of uncertainty in the closing stages of an iva. However 54 mths is a long time and in many respects the certainty an iva does bring for that period is well worth it.

After going through a debt charity, your passed onto a different organisation for the actual iva, I don't for a minute think they are not for profit. Maybe some money feeds back to the charity, but someone will benefit from our debt, there always is.

I know we both have BR clauses in our employment so that had to be avoided, had we struggled on for longer than when we did, it may have been our only option and the consequences would have been severe.

Whilst were aiming for some sort of financial rehabilitation through our iva, things don't change over night and it can be easy to slip back to old ways, obviously avoiding credit.

Hi

Its a good, balanced and fair post FiatFan.

Always good to have balance in any debate

Best regards

milliemonster

Dc I agree wholeheartedly with your post, we lost all our equity and at the start of our iva our mortgage equalled the value of our property, I'm keeping everything crossed it stays that way as having taken out secured loans in the past that have always started off at a fairly reasonable interest rate they have only ever gone one way, up and up irrespective of what happened to base rates/ labor, they would then just use the excuse 'market forces' I would be incredibly uncomfortable if I was forced to take out a sub prime secured loan to release equity in year 5 that could potentially increase our debt over the coming decades and potentially end up causing unaffordibility anyway.

If this was told to me at the start that a secured a loan would have been expected, I would not have gone down this route, I took an iva to become debt free in 5 yrs and not to be further saddled with more debt forever

UpToMyNeckInIt

The whole 'profit' argument is a valid point here:

IP's are supposed to be 'honest brokers' - acting in both the customer's & credotor's interests. I don't like the idea of IP's "creaming off" their 15% of 'additional realisations', but it is a clause in many IVA contracts. It is an insidious position for IP's to be put in by the creditors. It is open to abuse by the unscrupulous and greedy (minority I'm sure), within the IP profession.

The bottom line in all of this is that the IP should be enforcing the proposal as it was signed up to. If the equity clause specifies re-mortgage or 12 months then that is what happens. If it just says, for instance, introduce available equity (by any means), then secured lending or the sale of body parts will be expected --- and, more importantly, the debtor will be aware of such a provision and prepared for it!!!

As DC touched upon: The whole point of an IVA is that there should be an end point (as is the case I'm sure for the majority). However, looks like some IVA customers may ultimately end up turning unsecured debt into secured debt, and then you are saddled with it.

Whilst I hope it would not happen, if I thought that come IVA Year 4 (time to get a remortgage), my IP would be likely to say:

"You have been unable to get a Remortgage and although I could extend your IVA for 12 months where you will then be Debt free as per your contract I thought I would do your creditors a massive favour so I've found you a secured loan with a sub prime lender at 15% apr and you will now be Debt Free in 10-15 Years".

I would, in addition to considering legal action for 'breach of contract', and making formal complaints, do everything in my power to make sure I do not qualify even for the most generous of lenders.

Being self-employed, I am sure I can engineer a poor trading year etc. The employees amongst you could ease up on the overtime, reducing your income. Small price to pay if you then get rejected for the loans, saving thousands of pounds in interest and further payments.

However, I suppose the balancing argument to all this, is that the resulting additional monthly payment is capped at 50% of your current IVA monthly payment (with any remaining IVA payments reduced by the same amount), making it 'affordable' - despite the high 'credit Card' interest rates that may apply to the secured loan.

Very concerning indeed: If I wanted to enter an agreement with my creditors where the goalposts can be shifted, and it would take 15-20 Years to pay off my debt, I'd have gone for a DMP!!!

Those companies already eyeing up the 'mis-sold IVA' claims market, are going to be busy in a few years me thinks.

UpToMyNeckInIt

On a lighter note, I wonder if us homeowners in IVAs could sabotage any property valuation, to make ourselves less likely to be accepted for such a rip-off product nearing Month 54. (Assuming you have enough equity (and especially if you are borderline), and a ruthless IP).

An obvious one is to make you place look as undesirable as possible to a potential buyer, adversely affecting any valuation. I got chatting to an Estate Agent (next door neighbours sold up last Year), and he reckons it’s amazing how an untidy / overgrown garden and messy house can apparently affect a house price by £thousands. (Very relevant – next door’s place was a tip).

This got me thinking: Even removing kitchen cupboard doors/draw fronts and hiding them in the loft for re-fitment later (maybe deliberately re-hanging one or two, leaving them hanging unevenly off the hinges). My guess is that this will fool the average 20-something-year-old estate agent into thinking 'new kitchen required', and valuing downwards accordingly. Same applies for removing bath panels, and letting bathroom cleanliness deteriorate to 'student house' standards. (Not nice I know, but a means to an end).

Anyone with children and a screwdriver should have no difficulty in achieving the above combination!!! Just how disgusting you want the place to get is entirely up to what you can stomach.

All of the above measures are of course easily put right for nothing after you are out of danger.

Also, for example and theoretically, I suppose you could take out a SMALL as possible payday loan (say £200-£500 – make sure you have permission from your IP to use the £500 credit clause), then be 'accidentally on purpose' a day or two late paying back an instalment or two, racking up some more nice red recent crosses on your credit file.

Even sub-prime lenders have lending criteria, and many may consider you ineligible for their product if you have 'missed a loan/credit card payment is the previous 6 Months' (to quote one provider), regardless of how much equity you have.

OK, so you rack up a few quid in penalty fees/interest, but still preferable to securing credit card interest rates (or a new 8%apr sub-prime mortgage) against your property.

Then your IVA provider would have no option but to just extend the IVA for another Year instead (or conclude it at Year 5 if you've done a really good job in trashing the place!!!).

Not wishing to make light of the subject, but just a thought or two.

Rant over for today!

FiatFan_2

I don't think you can use the £500 credit clause for payday loans, it's purely for utilities as far as i'm aware.

After 54mths in an iva with little to no money for home repairs, i doubt anyones house will be in the most saleable position. iirc we have £15pcm for home repairs (budgeted whilst home owner) you can't do too much on that.

I didn't know the IP creamed off 15% of the overpayments, ooh well not to worry

Depth_Charge

FiatFan wrote: »

I don't think you can use the £500 credit clause for payday loans, it's purely for utilities as far as i'm aware.

After 54mths in an iva with little to no money for home repairs, i doubt anyones house will be in the most saleable position. iirc we have £15pcm for home repairs (budgeted whilst home owner) you can't do too much on that.

I didn't know the IP creamed off 15% of the overpayments, ooh well not to worry

Hi

The point of the cost of maintaining the home is hugely relevant in an IVA or any other debt solution for that matter as is motor vehicles.

Health, safety and a right to a reasonable standard of living have to be paramount especially where children are concerned.

Its ridiculous to have concerns on these type of issues where someone has entered a debt solution be it a formal or informal one, absolutely ridiculous and indefensible in my opinion.

Sorry, but profit and debt advice dont quite always mix in my humble opinion

Just my takes again