A reader asked:
We are desperate to end our IVA. So difficult. The IVA firm that seemed helpful at the start now after two years doesn’t care about our extra costs. We have decided to sell and downsize.
My wife is hoping for a discount but I said they were more likely to charge us more to get out early! We need as much equity as possible for the next house.
This is a tricky situation. There is a bad way to approach it… and a better one… but even the better one has some big disadvantages.
But first the important disclaimer – IVAs can have very different terms. If you want to sell, you are going to have to talk to your IVA firm about your specific situation. I’m just going to talk about some common IVA terms, which will hopefully leave you better prepared for that conversation.
The bad way…
I expect you are hoping you will just have to pay the rest of your IVA payments – probably three years more plus an extra year because you have a house with equity.
But until your IVA ends, you still owe all your debts and, in the IVA, you have agreed to pay as much as possible towards those debts. So if you tell your IVA firm you want to sell your house and end the IVA, they are likely to tell you that the amount needed to settle your IVA will be:
your full debts at the start,
plus the IVA fees,
plus something called statutory interest (if this is in your IVA terms)
less the two years payments you have already made.
There will sometimes be a clause in your IVA which means you have to be left with at least 15% of the value of your house. But even with this, you may have to pay a lot more than your remaining IVA payments would be. So this is not a good approach.
The better way…
Instead, work out what the remaining IVA payments will add up to, including an extra year as you have a house with equity (see How equity release works in an IVA for more about this).
Then contact your IVA firm and say you would like to make a full and final settlement offer of £x, the total you have just worked out. Explain that you intend to finance this by selling your house, but if your creditors do not agree to this proposal, you will not sell the house and your IVA will continue.
The IVA firm will have to propose this to your creditors as a “variation” to your IVA, and they will decide whether to accept it. You need this all sorted out before you sell the house.
The problem with what you are proposing, even if you get a full and final offer agreed for your remaining IVA payments, is that it will be almost impossible to get another mortgage straight away.
Although your IVA will end and your debts will be settled, the IVA marker will stay on your credit records for six years from the start of the IVA. This will happen even if you pay off your debts in full! This marker will stop you getting a new mortgage. So your plan isn’t going to work unless you are downsizing so far you can buy without a mortgage.
The reader who asked the question had no pressing need to move, just a desire to end their IVA. They could sell, ending their IVAs and rent for the next few years. As they are struggling with their IVA, they need to discuss this with the IVA company – there may be ways to help with their increased expenses that could help. If this would involve prolonging the IVA more than they can face, they may have to go for the sell and rent option.
Other people may have urgent reasons to move:
- to somewhere bigger if your family is growing up;
- closer to better schools or to elderly parents that need support;
- relocation may be needed because of your work.
For them, a possible option would be to rent a new house but keep the current one and let it out. They need to consider how this will affect their IVA with both income and expenditure changing.
If you are reading this before starting an IVA, think how likely you are to have to move during the next 6 year… IVAs are not flexible debt solutions. If your life may have big changes – house moves, new baby, family changes, new job – the long IVA commitment may not be suitable for you.