The 4th January sees most households return to work, with Auld Lang Syne sung for another year and the must-have Christmas toy probably already having fallen out of favour. But with 42% of marriages ending in divorce it may not come as a surprise to learn the first working Monday in January is dubbed Divorce Day – the peak day for legal firms to receive divorce related enquiries.
Considering your mortgage options when going through a divorce may seem the last thing on your mind, but in the wake of the Mortgage Market Review in 2014 many divorcees have found themselves so-called ‘mortgage misfits’, finding it hard to access the mortgage market. This is because of stricter affordability criteria with lenders looking at incomings and outgoings to assess the applicants’ ability to make repayments both now and in the event of any future rate rises.
Divorcees have been affected not just due to the usual outcome of a reduced household income, but also because only a handful of lenders will accept child maintenance payments when calculating income. With 2.8 million UK households consisting of lone parents, this means mortgage applications may be judged solely on an often part-time employment income due to child care responsibilities.
There are a few mortgage lenders out there who will accept 100% of child maintenance payments in addition to employment income when calculating affordability. One of these is Ipswich Building Society.
Another thing to consider is to research a mortgage lender who uses manual underwriters, and not computer based assessments. These underwriters are able to get to know your individual circumstances and judge your application on its merits, rather than trying to fit it into a one size fits all computer decision.
For those who are divorcing a partner with whom they hold an existing joint mortgage it is important to understand the obligations of the mortgage agreement – remember, you are still liable for that mortgage even in the event of a relationship breakdown.
One option is for a party to buy their partner out of their share of the property, and take on the whole mortgage. If this isn’t an option there are several orders the courts may make, with the priority being for children involved to have a secure home. Some of the orders will require changes to your mortgage contract, so it is advisable to speak to your lender as soon as possible. The options may include transfer of ownership, with lesser share of possessions; retaining joint ownership but giving one party the right to stay; transferring the home to one party but with a charge secured on the property (ensuring the other party receives a set percentage when the home is sold); or selling the home and splitting the proceeds between both parties in whatever proportions are deemed fair.
Last but not least, during a separation there may be financial pressures meaning you could find it hard to afford your mortgage. As is the case with any outstanding debt, missing scheduled payments or going into arrears, even temporarily, can affect your credit and ability to get a mortgage in the future. Always speak to your lender at the earliest opportunity to explain your situation.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.