Anyone with IVA knowledge

milliemonster

This new clause has been put in as there are now providers who will offer secured loans to release equity for people in Iva's but most people in an iva do not want to take out a secured loans for x number of years when the other option would be to continue paying monthly payments for a further 12 months instead (which is in the 2008 protocol) they have been able to get round that as the wording in the 2008 protocol specifically states 'remortgage' and not a secured loan, they are different products.

I wholeheartedly agree that if you have significant equity, there is no point going down the iva route as all that will happen is at the end of 5 years of payments you will now be expected to take a high interest secured loan for lord knows how long, meaning a debt solution that was originally going to be for 5-6 years could now be just as long as that dmp was going to be.

I am in an iva myself (3 years in ) and it was absolutely the right decision for us at the time, but if I were looking at it now with that new clause in? No way.

UpToMyNeckInIt

scared-sick wrote: »

Thank you that is very helpful.

I went through some equity release scenarios with them too and working on BEST case (not current case) scenario i said in 5 years time if house was worth £125,000 and i owed £100,000 on my mortgage, how much equity release would that be, she said £6000, does that sound about right??

She then said about probably not getting a remortgage so iva will continue for a 6th year. Thats fine but i dont want to take out a 6 grand high interest loan!!!

Would they even look at affordability if they tried to make me take out a loan or would they not care as the loan would in effect end the iva??

Sorry so many questions x

...Don't be 'sorry' - they are very legitimate questions that need to be satisfied if you are considering an IVA.

Yest that sounds right: £106K is about 85% LTV of £125K.

Here is the thing though: IF (and it is a big 'if'), you are somehow considered eligible for a remortgage at say 9%apr (because it would be a sub-prime rate), it will actually work out considerably cheaper to keep your existing 'prime' mortgage, and add on a 'secured loan' for £6K.

How much do you think your IVA repayment would be? I ask because and equity release solution is limited to a repayment of HALF your IVA repayment (to keep it affordable).

I used the following example a while back to demonstrate this:

Assume an IVA customer and homeowner currently repaying £500pcm into their IVA. Their house is worth £242,400 (about the UK average), but mortgaged at £145,000 at 4.5% apr over 20 Years. Monthly mortgage repayment around £900-£930pcm.

At equity release time, they have to attempt to raise £10K through equity release. (Assuming they meet all affordability criteria).

Choices:

1). Remortgage offered for £155K at 7.55%apr for 25 Years = £1126pcm.

Total repayable: £337,600. Total interest paid £182,600 (as opposed to the £78,000 to £95,000 interest on the existing 'normal' mortgage). So the remortgage leaves the customer £87,500 worse off at best assuming it goes to term.

2). Secured loan for £10K at 18%apr for 10 Years = £172pcm.

Total repayable: £20,600. Total interest paid £10,600.

Option 2 leaves the customer nearly £77k better off.

...OK, my maths may not be dead-on, but you get the idea.

I know what I'd go for: Give me the loan any day. In fact my example should probably be re-calculated on the 9%apr mortgage that I know is available, and the 11.9%apr 'loan' that has reportedly been offered to an IVA customer on another forum.

Remember as well, that even if you get lumbered with a secure loan, once your credit rating is restored approx 18-20 Months later, you may be able to shop around for a cheaper product.

...But I understand your concerns. Bottom line is that most so-called experts have consistently failed over the years to predict the up's & down's of the housing market, general economy etc. So there is a degree of uncertainty over 'equity release' for new customers especially.

scared-sick

Thank you so much again for taking the time to reply!

Up to my neck in it, wow you are a math genius in my eyes!!!
I completely understand what you are saying in your scenarios.
My IVA would start off at £100 pm. I know it has the possibility to go up at each review. I also realise it is a low IVA amount.

From what you have just said there i think i would choose not to do an iva. If i took out a high interest loan for £6000, i assume that would take me about 6 years at £100 pm just to pay the loan with no interest. This takes my 'IVA' to at least 12 years! Plus it just really doesnt sit right with me that you go into an iva to clear debt but then get forced to take out new debt to clear the iva off!!
I understand the equity release and remortgage and to me that seems fair but the loan just doesnt.

Also with the remortgage if i understand it right, i would not be expected to remortgage for a longer term than i was currently on nor if the cost of the remortgage monthly payments exceeded 50% of my iva amount so in my case, my mortgage could not go up by more than £50. Is that right?

Oh i have just had a Lbm too i think. I have been considering an iva as i don't expect my circumstances to improve however, as one of you have mentioned, i would be moved onto a svr mortgage which someone said 'i might be surprised with'.
Well i hadn't considered this.!
So in 2 years if i went on to svr and my mortgage comes down, i could pay more into my dmp and reduce the term.
If i can double the £100 to £200, this will change things dramatically reducing the term from 26 years to 13 years with no loan!!

What do you think?

UpToMyNeckInIt

...If your IVA repayment was £100, then any secured loan would only be for a max. £50pcm, same with any resulting remortgage increase.

Speak to some experts (CAB, charity and private sector), with your exact numbers to hand to see what the likelihood of you qualifying for this product would be.

My honest appraisal of the situation is that it is only customers with huge amounts of equity that have been caught out.

Also, people forget: Secured lending is usually limited by multiples of your net household income, so if your existing borrowing is say 4x your income - nobody will lend you a secured bean more, no matter how affordable it is.

My 2 mortgages amount to 7x our current household income, so even though I have equity (about £50k currently, hovering around the 85%LTV-mark), I cannot release it.

As you say though, you might find that switching to the SVR will save you money, allowing you to complete the DMP more quickly (still 13 Years mind, but I see where you are coming from).

However, remember a Year or so ago, the Bank of England pledging not to consider increasing interest rates until unemployment dropped to 7%? ...and the raft of 'expert' saying that won't happen for at least 3-4 Years?

News earlier this week: Unemployment at 7.1%. Squeaky-bum time for those of us on the SVR me thinks!!! Yet another 'expert' forecast proving totally inaccurate.

...So I think the time remaining for record-low interest rates can now be measured in Months, not Years. Something which you must also factor into the mix.

scared-sick

Thanks again.

Such a lot to consider and i really do need a crystal ball to see what would be the best option for me.
There are still so many variables and different scenarios and the truth is i cant predict the outcome of them all and that scares me.
On the other hand so does doing nothing.
A 26 year dmp is ridiculas but i know it and can manage it.

I am with stepchange for my dmp and have spoke to stepchange about the IVA, can anyone recommend someone else i can talk to in order to kind of get an impartial second opinion? Is that even an option?

mrmalawi

Hi,

I've been losing a lot of sleep over our situation and an IVA seems to be the best way forward for us. Now its a question of using the best company to be our IP
I was passed on to Grant Thornton by Stepchange and wandered how they compared to other organisitions or if anyone could recomedn a couple?

greatly appreciated

longtermplanner

Look at http://www.iva.co.uk/ and think about who else to ask. I think talking to a few IPs is worthwhile. You need to be able to trust the person you are talking to, not feel they are like an estate agent trying to make money if you buy this flat.

nb I am not saying Grant Thornton aren't to be trusted, just that if you speak to other people you will get more of a feel for things. Some people prefer a smaller company as they get more personal service. Others feel a 'big name' is a safer choice.

mrmalawi

Thank longtermplanner, i'll have a look there.
greatly appreciated

Find_The_Real

The question of using the best IP can be a bit of difficult one as many people have different experiences with each one. I decided in the end to go with a small firm who had excellent reviews and I found I had much more of a personal service. I can always contact them and generally get a quick response back via either email or telephone. To me communication is essential as it is long time to have a relationship with one firm.

Generally a chat with a couple of them after doing some research should put your mind at rest of who to choose.

scared-sick

Find_The_Real wrote: »

The question of using the best IP can be a bit of difficult one as many people have different experiences with each one. I decided in the end to go with a small firm who had excellent reviews and I found I had much more of a personal service. I can always contact them and generally get a quick response back via either email or telephone. To me communication is essential as it is long time to have a relationship with one firm.

Generally a chat with a couple of them after doing some research should put your mind at rest of who to choose.

I am quite happy to go with stepchange iva now that i know it wont be done through grant thornton.