Over recent years Individual Voluntary Arrangements, or IVAs, have become increasingly popular with borrowers that have found themselves in unmanageable levels of debt. With an IVA, if agreed, the borrower pays a set amount each month, which is then distributed amongst all creditors on a pro rate basis, and the term of the agreement is usually five years. At the end if the five year period any remaining debt is written off leaving the borrower debt free.

However, there is a clause in the IVA agreement with relation to homeowners. Whilst those that have entered into an IVA do not have to sell their home in order to go through this process, the clause states that in the final year of the IVA the homeowner must use any equity in the home to put towards the outstanding debt, and this could result in these consumers facing crippling interest rates. Experts state that it means the homeowner will have to take out finance against the equity in the home, and this will probably be at a far higher rate than when they originally took out their mortgage.

IVA homeowners will also face a second blow, as their poor credit profile resulting from the IVA means that they will have to pay an even higher rate of interest on the money they borrow, which could make the repayments crippling.

One industry professional stated: ‘There is a problem here. People in an IVA will be remortgaging into something significantly more expensive. Not only are mortgage rates higher than when these people bought their houses, but they could well be classified as sub-prime – that is to say as riskier borrowers who need to be charged more to compensate for that risk.’

Recent additions:

• Options That Can Help Clear Your Debts
•  Will IVAs become more transparent?
• IVA homeowners face soaring interest rates
• Wipe Out Debt Problems With A Low Rate Loan

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