Divorce and Mortgages – What to Know
Around 42% of marriages end in divorce, according to the Office for National Statistics. So having to work out how a divorce will affect your mortgage is not that unusual.
But if you’re going through a divorce and are concerned about how it might impact your home and your mortgage, don’t worry.
There are lenders out there keen to help you.
Can I sell my house before a divorce?
In theory, the most straightforward option is to sell the property, pay off the outstanding mortgage, split any remaining proceeds and then head off on your own separate paths.
But that overlooks the emotional connection you have with a property, as well as the logistical issues it may throw up if children are involved.
So what happens if one partner wants to take over the mortgage and keep the house after a divorce?
There are a number of options open to you, ranging from a simple remortgage to arranging finance with a lender that offers a specialist divorce mortgage programme. But the first step will involve a chat with your existing lender.
Speak to your lender
Once it is clear that you and your partner are splitting up, it’s a really good idea to speak to your lender.
It may be an uncomfortable conversation, but generally they will be sympathetic to your plight and may offer you a payment holiday to help ease the financial burden.
This will only be a temporary measure though, and you will need to work out a more long-term solution.
You will still have responsibility for the mortgage during the divorce process. If you stop paying the mortgage during the divorce proceedings you risk repossession.
Consent Orders and Financial Orders
If the split is amicable, and both partners agree to how your finances will be divided - including the property - then you will need to get a Consent Order to make it legally binding.
This needs to be drafted by a solicitor, and signed by both ex-partners. It costs £50.
If you can’t come to an agreement between you, then you can ask the courts to make a Financial Order for you.
This process runs separately from the divorce itself, and can take up to a year. It costs £255 and may require a number of court hearings.
Can my ex sell our house?
If your partner is the sole owner of your home, then you may be worried that you are powerless to stop them selling the property.
However, you can protect your right to live there by registering a Notice of Home Rights with the Land Registry.
You’ll need to know if the property is registered in your partner’s name, and its title number if it is.
There are different forms to go through depending on whether the property is registered or unregistered, but the good news is that it is absolutely free.
This will only be a short-term option though - a Notice of Home Rights only guarantees your right to live in the property until the divorce has been finalised and a court settlement is agreed.
If there is an on-going dispute about who owns what, then you may be able to stay in the property for longer if the court makes a ‘continuation order’.
Divorce mortgage buyout
If you have a joint mortgage, then you’re both responsible for making repayments, irrespective of whether you still live there.
So both of your credit scores will be affected if you fall behind on your mortgage repayments.
If one partner wants to remain in the property, then they will need to take over the mortgage after divorce.
They must demonstrate to the lender that they are capable of covering the mortgage payments on their own, without the help of their ex-partner.
The lender will assess them as they would a new applicant, to establish whether the mortgage is affordable on their income alone.
They are under no obligation to remove the other partner from the mortgage deed unless the borrower can pass this test.
Even if you can afford the current mortgage on your own, you may need to ask for a larger loan in order to buy out your ex-partner’s stake in the property.
You will need to prove that you can afford refinancing the house after divorce at this level.
Transfer of Equity
A Transfer of Equity is needed when you want to change the legal ownership of a property on which there is a mortgage.
If you plan on removing a name from a joint mortgage, you’ll need to apply for one.
Only once it is in place will the lender remove your ex-partner’s name from the mortgage.
Lenders may insist on the use of a solicitor here, though there are some online conveyancers that offer DIY Transfer of Equity packs.
Getting a mortgage after divorce - guarantor mortgages
In recent years lenders have been forced to be much more thorough when assessing what a borrower can afford when taking out a mortgage.
As a result, the process can be rather tricky if you have just gone through a divorce.
One option is a guarantor mortgage.
With a guarantor mortgage, the borrower has to find someone - perhaps a parent or sibling - to ‘guarantee’ that they will be able to meet their monthly mortgage repayments.
The guarantor will often have to put up their own property as collateral, so that if the borrower falls into default the lender will be able to pursue the guarantor for the unpaid debt.
A guarantor mortgage may be an option if you want to keep the family home but cannot prove that you can cover the existing mortgage repayments alone, as they offer the lender some peace of mind.
Guarantor mortgages may also be an option if you choose to sell and want to buy a new property elsewhere.
However, it is important to bear in mind that many lenders do not offer guarantor mortgages, preferring instead to go for a joint mortgage where the parent or sibling is a joint borrower and owner with the divorced applicant.
As a result, you are likely to have very few options if you want to pursue a guarantor mortgage.
Specialist divorcee mortgages
Some years ago lenders, such as Yorkshire Building Society, devised specialist mortgages designed for divorcees.
Yorkshire’s Fresh Start range allowed borrowers to borrow at 100% loan-to-value, and charged minimal rates of interest in the first couple of months in order to give a bit of breathing space.
Sadly, there aren’t any such mortgages available today, though some lenders have put together initiatives aimed at helping divorcee borrowers, implementing Divorce Mortgage Programmes that guarantee a manual underwriting process and emphasis on the applicant’s evidence rather than Office for National Statistics data.
Speak to a good whole of market mortgage broker to see what options are available to you.
Child maintenance and your mortgage
Different lenders take very different approaches when it comes to child maintenance and mortgages.
Some will consider 100% of the child support payments when assessing whether a borrower can afford the mortgage they have applied for.
Others will only consider a percentage of that income, while a couple of lenders will not include it at all when assessing affordability.
Equally, some will only consider it if it has been received for at least 12 months, or it has been court ordered.
As a result, it is a really good idea to get some professional advice from a mortgage broker who knows exactly what lenders will be most appropriate for your circumstances.
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