What Are The IVA Home Equity Release Rules

What happens to the equity in your home if you start an IVA? Will you be forced to re-mortgage and release money from your property to pay your debts?

New rules introduced in 2025 are good news for home owners. The requirement to release funds from your home has been taken away in the majority of cases.

Use this guide to find out exactly how your home will be affected.

Contents

The implications of an IVA for your home and the equity in it

As a home owner, the IVA debt solution is designed for you. It gives your property legal protection from your debts.

At the end of the agreement, any unpaid debt you owe is written off. A significant benefit of the solution for you is that you still own your home. You will not be forced to sell.

However as a home owner, you may have to release equity from your property so that the amount of debt you pay off during the Arrangement is increased.

Whether you have to do this will depend on a number of factors including

• When your IVA started
• The value of your share of any equity in your property
• Your ability to actually release any of your equity

Is your mortgage written off in an IVA?

Your mortgage is not written off if you start an IVA. This is because it is a secured debt.

You must continue to pay any secured debts such as your mortgage as agreed with your lender. If you don’t, your home could be at risk of being repossessed.

A sufficient amount will be included in your living expenses budget to cover your mortgage (and any secured loans). As such you should always have a sufficient amount available each month to pay it.

How to calculate the value of your home equity for an IVA

The standard method to calculate the value of your equity is as follows:

Get an estimate of the market value of your property. Then, take away the value of your outstanding mortgage and any other secured loans and charges. The amount left over is your equity.

As an example: Say your home is worth £300,000 and your mortgage is £250,000. Your equity is £50,000 (£300,000 minus £250,000 = £50,000).

The calculation for the purpose of an IVA is different. This is because you only have to use 85% of the market value.

Using the same example as above: The amount is only £5,000 calculated as follows:

85% of £300,000 = £255,000; £255,000 minus £250,000 = £5,000

Calculating home equity if your property is jointly owned

Where you own your property in joint names with someone else (for example your partner), only your share of the equity can be considered for the purposes of your IVA.

Your share is equal to the percentage of the property you own. Normally this would be 50/50 with the other owner but the split could be different.

As an example, if you own the property 50/50 with your partner, your share is 50% of the total equity calculated.

Equity release rules if your IVA started after April 25

In April 2025, new rules were introduced for most standard IVA agreements (re: the IVA Protocol 2025).

Under these rules, where your share of the equity is valued at less than £10,000, it is excluded. This means you do not have to release any equity from your property. It is not involved in the agreement.

Your agreement will last for a standard 5 years (60 months).

If your share is £10,000 or more, it is still excluded. You will not have to release any. However, the length of your Arrangement will be increased from 5 to 6 years (72 months of payments).  

This is very good news if you are thinking about starting an IVA today.

Remember: For the purposes of an IVA, your equity is calculated using just 85% of the estimated market value of your home.

Where the 2025 home equity rules may not apply (even if your IVA started after 2025)

There some circumstances where the above rules do not apply, even if you start your IVA after April 2025:

• You have a considerable amount of equity in your home
• You have a significant HMRC debt
• Where you own more than one property

In these situations, you will be unlikely to be able to get an IVA unless you agree to a bespoke Arrangement. This will almost certainly include some kind of equity release provision.

Rules where your IVA started before April 25

Where you started your IVA before April 2025, the equity release rules will probably have been based on the IVA Protocol 2021 (introduced August 2021).

Under these rules, you would not expect to have any equity release requirement if your share was valued at less than £5000 when you started your IVA.

Remember, for the purposes of an IVA, the calculation is based on using just 85% of the estimated market value of your home.

You would also not have any equity release requirement if your share was greater than £5000 when you started your agreement BUT you also met the following criteria at the time:

• The total secured borrowing required to raise money from your property would rise above 45% of your total household earned income (from salary, self-employment and pensions).
• The surplus income you paid into the IVA was £100 or less when it is drafted and agreed.
• You were aged 60 or above at the start of your agreement.

However, in the above circumstances, the length of your Arrangement would have been increased from 60 to 72 months (6 years).

Where your share of the equity was valued at more than £5000 and the above criteria did NOT apply, your IVA would be based on 60 months (5 years) of payments. However, you will ALSO be required to attempt to release funds from your property in the 54^th month.

Criteria for releasing home equity where required by your IVA

Where you are obliged to try and release equity from your property as part of your IVA, the following rules will normally apply:

1. Re-Calculate the value of your equity in the 54^th month
On (or around) the 54^th months of your agreement, you will be asked to provide a new estimate of the value of your share of your equity.

If this is £5000 or less, it will be ignored. Your IVA will complete after you have made the final agreed payment.

Remember, your equity calculation should be based on 85% of the current market value of your property less your outstanding mortgage (and other secured borrowing).

2. Where equity exists and release is possible
You need to investigate the possibility of releasing funds either by re-mortgaging your property or by getting a secured loan.

Where this is possible, the amount you must release is limited by the following:

• The additional cost of any new mortgage or secured borrowing must not be more than 50% of your existing IVA payment.
• Your mortgage term can’t extend any longer than your existing mortgage or past your state retirement age.

3. Where equity exists but release is not possible
Where you are unable to release available equity, the number of payments will be extended to 72 months. Once these are paid, the IVA will be completed.

You will need to prove that you are unable to release funds by providing evidence that you have approached two different mortgage lenders who have both refused to lend to you.