Thousands of people with a history of personal insolvency could face higher mortgage repayments in the next twelve months.

Many opt for an individual voluntary arrangement (IVA). This is an alternative to bankruptcy under which the lender agrees to a repayment scheme for some of the debt in return for the lender, generally a bank, writing off the rest. Standard IVA's generally include a clause under which the borrower, should they be a homeowner, are required to release equity in their home to help reduce their debts. This generally takes place within the first year of the IVA which will result in many homeowners looking to remortgage their properties within the next 12 to 18 months.

As interest rates have increased recently, many homeowners will find the new mortgages are more expensive and some may be classed as "sub-prime" or "greater risk borrowers" and be charged even more to compensate for that risk.

However, should the borrower be able to prove they cannot afford the second mortgage, to cover the equity released, the lender must write off the money they expected as all IVAs contain a clause that states that borrowing to cover equity release must be affordable.

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Article referenced from http://www.thisismoney.co.uk/dealing-with-debt/article.html?in_article_id=430958&in_page_id=62&position=moretopstories