New IVA questions.

cheeseoatcake

Hi all,

I'm waiting for my draft IVA to come from GT.

Just a concern about the equity in our house I don't fully understand the iva terms regarding it.

At the moment we have a mortgage of £114k with 19 yrs to go. The house is joint owned. The house is worth approx £165/175k leaving some equity £50kish. Our mortgage is £750 pmth which after interest that equates to about £3,500 per year off the balance so in another 5 yrs we will have paid off another £18k off the balance. So if you include a house price increase of 4% per year after year 5 we could have joint equity of £100k so my share £50k.
My debts are approx £50k due to many factors including salary drop.
At present after agreed priority bills I'm left with approx £150 pmth to go to GT which after 5 yrs is only £9000 less GT fees wont leave much for the creditors.

So after year 4 I can't see there will be much paid off the creditors balance, I can't see my Income going up but my equity will.

Any advice on what the scenarios might be and if indeed you think the creditors will except this.

Or is there any other options apart from IVA?

Kind regards

UpToMyNeckInIt

...sounds like a classic case of being 'asset rich' but 'cash poor'.

The limiting factor her insofar as equity release is concerned, is that any secured loan/remortgage attempt (and with the sort of equity you are talking about, I am sure this would be explored), is limited to 50% of you IVA repayment, ie: £75pcm - so you are unlikely to be able to remortgage/ secure loan, as the adverse APR would increase your repayment by more than this amount.

Over and above this, you will only be lent a max. of 3x your household net income.

Chances are then that you will not be able to release equity, but your IVA may continue for a 6th Year.

That yields a 18-20% dividend. Low granted, but not unheard of, and if that's what you can afford, that's all you can repay.

cheeseoatcake

Thanks for the reply,

Would the re-mortgage/secure loan only be based on my income as the IVA would be only for me and not my OH.

UpToMyNeckInIt

Yes, if only you are in the IVA, the joint mortgage holders half of the equity is protected.

Not sure on how the affordability is calculated, they are only looking at your income though, but would want to be sure you could both afford the repayment I guess!!!

To be fair, in the current economic climate, you would need to have a considerable payrise and subsequent increase in IVA payments before even starting to break sweat over equity release. Example:

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 '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.

Fact is, with the housing market apparently picking up, I suppose more and more IVA customers will have to consider all options in a few years time.

Either way, you have nowhere near enough surplus income to borrow even a relatively small £10K with the apr's available to IVA customers currently.