For homeowners, an IVA is often chosen because it avoids the risk bankruptcy poses to your home. But equity doesn't disappear from the picture. This page explains how it's handled and what to expect in the final year.
Owning a Tyneside flat or terrace: what happens to the equity?
Equity is the value of your home minus your mortgage and any loans secured on it. Long-term owners in South Shields can have a meaningful amount of equity even if the property isn't worth a great deal, because the mortgage has been paid down or paid off.
Your home isn't sold at the start of an IVA. Instead, the proposal explains how any equity will be dealt with later, usually through a review near the end of the arrangement.
The final-year property review
About six months before your IVA is due to end, your property is revalued. If there's enough equity, you'll be asked to try to release some of it, usually by remortgaging, and pay that sum into the IVA. Most proposals limit the remortgage so your borrowing doesn't go above a set share of the home's value, commonly around 85%.
If you can't remortgage
Getting a new mortgage while you're in an IVA can be difficult, and if you've already paid off your mortgage you may be older or on a pension, which narrows the options further. If you can't release equity, you won't normally be forced to sell. The usual alternative is to extend the IVA by up to twelve months. Our guide to IVAs and your home covers this in more depth.
Joint ownership with a partner or family member
If you own your home with someone who isn't in the IVA, only your share of the equity is considered. Your co-owner's share isn't touched. However, they may need to agree to any remortgage in the final year, so talk to them before you go ahead.
Some properties in South Shields were bought by family members together, for example a parent and adult child. The same principle applies: only the share belonging to the person in the IVA counts.
If you've inherited a share of a family home, for example after a parent's death, that share is an asset and needs to be disclosed. It doesn't automatically mean the property must be sold, but your proposal will need to explain how it will be dealt with, and the other owners' interests will be taken into account.
Could bankruptcy put my house at risk instead?
Yes, and this is the main reason South Shields homeowners tend to look at IVAs first. In bankruptcy, your share of the equity becomes part of your bankruptcy estate, and the trustee can sell the property or ask someone to buy out that share. In an IVA, you keep control of your home and make monthly payments instead. Our IVA vs bankruptcy comparison sets out the other differences.
Living on a pension in South Shields
South Shields has a sizeable older population, and many of the homeowners who ask about IVAs are retired or close to retirement. An IVA can still work on pension income, as long as there's a regular surplus after essential costs.
State and workplace pensions
Pension income that you're already receiving is treated like any other income in your budget. Your State Pension, any workplace pension and any benefits such as Pension Credit all count.
Pension lump sums
Some IVA proposals include terms about pension lump sums that become available during the arrangement. Read this part of your proposal carefully and ask questions before you agree, especially if you're within five years of your pension age.
If your income is low and you rely mainly on the State Pension, other options may be more suitable. A free adviser can check whether you're claiming everything you're entitled to.
Council tax and support from South Tyneside Council
Council tax arrears owed to South Tyneside Council can usually be included in your IVA. Your ongoing bill must be paid in full each month. If you live alone, make sure you're getting the single person discount, and if your income is low, ask the council about council tax support. Both reduce your essential costs, which can make an IVA more affordable.
Commuting, the Metro and your budget
Plenty of people in South Shields work in Newcastle, Sunderland or at the Port of Tyne, and travel adds up. Your budget should include the real cost of getting to work, whether that's a Metro pass, ferry fares across to North Shields or running a car. Underestimating travel is one of the most common reasons IVA budgets come under strain later.
When an IVA isn't the right answer
If you own your home outright but have very little income, an IVA may be hard to sustain, and you may want to explore whether releasing equity now, with independent advice, would clear the debts altogether. If you rent and have low income and few assets, a Debt Relief Order may be simpler. If you could repay in full over a few years, a Debt Management Plan avoids formal insolvency.
Next steps for South Shields residents
We're based in Newcastle and deal with enquiries by phone and email. If you own your home, it helps to have a rough idea of its value and your outstanding mortgage when we speak. Send the form at the top of the page, and we'll contact you at a time that suits you. There's no charge and no obligation.
You can also get free advice from Citizens Advice in South Tyneside or through MoneyHelper.
Homeowner questions
Will my mortgage lender be told about my IVA?
Your mortgage isn't included in the IVA, so your lender isn't a creditor in it. Keep paying your mortgage as normal. Some lenders may learn about the IVA from your credit file.
What if house prices fall?
The equity review uses the value at the time, near the end of the IVA. House prices in South Shields can move differently from the national picture, so the review uses a local valuation. If there's little or no equity then, you usually won't be asked to release any.