Mortgages and divorce: “Will I keep my home?” [Updated April 2021]
For the majority of our clients, this is the most important question, and if they can’t keep their home, ‘How will I rehouse?’. Many financial settlements centre on who keeps the family home. As one of the major assets in any marriage, it’s a natural focus of attention.
As part of our “Divorce is much more than just about the law” series, Rita Gupta interviewed Mark Robertson, Partner and specialist mortgage planner at Chadney Bulgin Chartered Financial Planners for his top fifteen tips on “How to keep your home”.
1. Can you afford it?
If you wish to keep the marital home, be wary of not getting overstretched with the mortgage payments. This is where the sentiment of wanting to retain your home has to be balanced against the financial burden that this may pose. Home ownership also involves other expenses, such as utility bills, maintenance costs, insurance, council tax, etc. Do consider all these if you want to retain your former matrimonial home, because your mortgage lender certainly will.
Mortgage lenders are much more cautious than in earlier decades, and will take into consideration your earnings, plus your credit cards and other debts too. If they believe you may be over-stretching yourself as a result, your application will usually be declined. Please also be aware that the court can order a downsizing of the property if they think it is appropriate to meet the needs of both parties, and that it is impractical for it to be retained.
2. Every mortgage is different
The mortgage market is evolving all the time, so don’t assume that new applications will be as successful (or not) as previous applications. The mortgage market can also be a confusing and time-consuming place. An independent mortgage broker can guide you through the various options, and also access specific mortgages not available on the high street or online.
At an undeniably life changing time when you’ll be consumed with many other aspects of your divorce, using a reputable mortgage broker can save you time, money and stress. Their experience can ensure the best deal of your particular circumstance, and point out terms and conditions that can make a considerable difference, such as redemption penalties. Mortgage brokers should charge a fixed fee flat regardless of the amounts involved, and many such as Mark will offer their initial calculations free of charge.
3. Consider equity release
So-called “silver separation” is on the rise, with more couples divorcing over the age of 55+. These ‘later in life’ divorces may involve properties that have risen substantially in value since first purchased. If you wish to keep the family home, and have limited income in retirement, repayments on a standard mortgage or buy-out may be prohibitive.
This is when equity release can help. With equity release, the outstanding mortgage rolls up, with no monthly payments required. Your estate pays it back on your demise or when you go into long-term care and the property is sold. Equity release can also help those with limited pension provision stay in their own home for longer. Always discuss equity release with your broker to ensure it is the best solution for your circumstances as this is a specialist area that requires specialist advice.
4. Look at retirement mortgages
Retirement mortgages are a new range of financial solutions, lying somewhere between standard mortgages and equity release. These have been introduced as regular high street lender mortgages are sometimes not available to those aged 50+ due to the potentially shorter term available to state retirement age. In this case, your pension(s) provide your income, These mortgage can be interest only or repayment remortgage.
5. Get the details right
Getting accurate and up to date advice is important, so please, steer clear of online affordability calculators. If you go direct to a lender or to their website you may find an affordability calculator, but these vary and can be quite different from other lenders. These online calculators are certainly not accurate for purposes of working out financial settlements, as there is not enough guidance on exactly what you need to include.
In contrast, a good broker works with you and establishes the concept of affordability. The result is much more accurate calculations, which have far more credibility in court. Family Court judges will scrutinise online calculators and check they are actually accurate, and that the settlement is affordable and feasible. You should therefore always check your position with an independent broker or advisor before putting an offer out to the other party.
6. Compare the products
A good broker has access to sophisticated software that allows accurate comparisons between mortgage offers. Your broker will analyse your financial situation, your outgoings and commitments, and run the resulting figures through the whole set of lenders. This enables a broker to find the best deals on very similar if not identical products - and the payments can differ hugely.
Indeed, there are big differences between lenders and their criteria. Some take pensions into account, for example, whilst others don’t. This is why an application can result in a firm “no” from one lender and why you may not understand why you were rejected. Equally, some lenders cap how much they lend a client, and simply asking for too much might also result in rejection.
The software solution ensures comprehensive, highly accurate figures which are penny correct, eliminating time spent on online or in-person applications that would never be accepted.
A good broker will match the right lender to you as the client, at the best rate. The days of ‘making it happen at all costs’ are long gone. Today, every broker must justify what they are doing, and the profession is (quite rightly) very heavily regulated.
7. High net worth mortgages
With the number of UK properties over £1m growing rapidly, high net worth clients have been demanding better deals and more bespoke products. The marketplace has responded with a range of very selective, interest only mortgages. The criteria are strict, but the saving made can be quite considerable. Again, ask your broker for details, as this can be an option in high net worth cases.
8. No guarantor mortgages
Getting a guarantor for a mortgage after divorce is now no longer possible, for both you and your family. However, that doesn’t mean that joint mortgages are not available after divorce. Instead of a guarantor, you can take out a joint mortgage with a ‘Sponsor’. This must be a blood relative, such as a parent, but cannot be your ex spouse or soon to be ex. This arrangement will allow an individual to be on the mortgage but not live in the property. Mortgages with the Bank of Ireland, for example, state that a Sponsor does not have to be on the title deed, just on the mortgage.
9. Scrutinise your debts and loans, and your regular outgoings
The key criteria for any mortgage lender is that the mortgage needs to be affordable for you as the mortgage holder. Most UK mortgage companies use the Experian credit reference agency, so they can ascertain your credit history regardless of your disclosure.
The types of outgoings that mortgage companies will consider are:
- pay slip outgoings
- loan payments
- HP and CC debts
- child maintenance or spousal maintenance regularly paid
- pension payments
- season ticket loans
- child care vouchers
- school fees and/or nursery costs
The exact criteria for lending does vary according to different lenders. However, no lender likes a client with a regular ‘betting history’ and this kind of behaviour is flagged up to them, with the individual deemed to be high risk. Again, using a broker will establish your affordability thresholds early, so that what you apply for matches your credit information and you are more likely to be accepted. Going direct to a lender each time can result in multiple credit searches and credit scores which can ultimately reduce your credit score. A broker will ensure that this situation does not happen.
10. Tax credits and income
Not every lender takes tax credits into account, and Child Benefit is only paid if you are under the £50k threshold. Others take all of child and spousal maintenance into account, whilst some do not. Income will be taken into consideration whether you are employed or self employed, as will any company car allowance, and bonuses if applicable. Do bear in mind the loss of benefits when children grow older when calculating your income into the future. Don’t overcommit or over-house yourself at all costs, and be prepared to sell when the children fly the nest. With the loss of any income relating to children such as child maintenance payments and tax credits, the mortgage may no longer be affordable once they have left home.
11. Joint and severable liability
If you are on a joint mortgage with your soon-to-be ex, and one of you is awarded the house, it can be hard for the non-resident ex to get another mortgage on a different property. If your name is on any mortgage, you are liable for it whether you live there or not, or pay anything towards the mortgage. The mortgage bestows 100% liability for each named individual, known as ‘joint and severable liability’. If you are in a joint mortgage, and need to take it on as an individual or get your own mortgage, do talk to an advisor first.
Similarly, if you are asked to remain on the mortgage and are offered an indemnity, discuss this first with your family lawyer, as an indemnity is only as good as the person who offers it.
12. Porting a mortgage
This is when you take the mortgage rate and terms with you to buy another property. This is sometimes an available option that can be missed. The other party has to agree to the porting of the mortgage. So, if you have a good rate, make this part of the divorce financial settlement and identify this as a live issue to your solicitor early on
13. Shared ownership
This can be an option if you do not have enough capital to put down as a lump sum or similarly, insufficient income for the full mortgage. It enables you to buy part of your home and rent the remaining share. Often the share that you own can be increased in the future. A good broker can arrange these, but these kind of offers can be few and far between depending on where you live.
Similarly if you are a Key Worker, there can be Key Worker schemes but these are also rare. To be eligible you must work in the public sector and provide a vital, frontline service.
14. Help to Buy Schemes
If you have never owned your own property, the Help to Buy scheme can really help. This is a government-assisted deposit scheme, applicable to selected new build properties. The 2021 scheme now includes three options: a Help to Buy ISA, Shared Ownership and an Equity Loan for new builds. The criteria vary slightly between the schemes.
For the ISA, your property must
- Be located in the UK
- Have a purchase price of up to £250,000 (or up to £450,000 in London)
- Be the only home you will own
- Be where you will be living
- Be purchased using a mortgage
For the Help to Buy: Equity Loan for new built homes (2021-2023):
- You must be a first-time buyer
- The home you buy must be within the relevant regional price cap
- You must not own or have previously owned a home or residential land in the UK or abroad
- You must not have had any form of sharia mortgage finance
The Equity Loan scheme currently allows you to borrow up to a minimum of 5% and up to a maximum of 20% (40% in London) of the full purchase price of a new-build home, when bought from a registered homebuilder. For the first five 5 years, the equity loan is interest free ,and you pay just a £1 monthly management fee by Direct Debit From year 6, you pay the £1 monthly management fee PLUS the monthly interest fee of 1.75% of the equity loan.
For more details, regional caps and a handy calculator, see the Help To Buy website: https://www.helptobuy.gov.uk/equity-loan/equity-loans/
The important thing to remember is that you are not eligible if you’ve already had a property anywhere in the world, including a buy to let property. Often people have gone for a bigger property by using the Help to Buy scheme, but it does need to be timed carefully to work to your full advantage.
15. High Income earners can get a second mortgage
For very high earners, regardless of whether or not they remain on the mortgage of the former matrimonial home, they may be able to obtain a second mortgage.
This is something to consider in traditional marriage set ups, whereby there has been one main and very high earner. The other has been a homemaker, who cannot take over the mortgage perhaps due to having young children and/ or insufficient earnings. Again this is a specialist market where a mortgage broker would be able to help.
Happy to help
If you need help finding your way in the mortgage maze, Mark is a specialist in both equity release and mortgage advice at Chadney Bulgin LLP Chartered Financial Planners. He also offers expert advice on client property portfolios for landowners, private landlords and finance for developers.
For help and advice on divorce in general, contact us here at LGFL Ltd for a free 30-minute consultation at our Swallowfield offices or at Spaces in central Reading.