4th January 2016
Divorce related enquiries to legal firms surge on the first working Monday in January, known as ‘Divorce Day’.
And with 42% of all marriages ending in divorce the financial after effects of a divorce or separation is something many people experience.
But what does it mean when it comes to getting a mortgage? Joanne Palfrey, brand & community senior manager at Ipswich Building Society examines the issue in this guest post.
In the last couple of years divorcees have found themselves ‘mortgage misfits’ – a term used to describe those who have found it harder to obtain a mortgage after the regulation imposed by the Mortgage Market Review.
In 2014 it imposed stricter affordability criteria, meaning lenders calculate the incomes and outgoings of applicants and judge if they can afford mortgage repayments not just now, but also in the event of any future interest rate rises.
A divorce typically results in a reduced household income, with 2.8m UK households consisting of lone parents.
So it seems at odds many mortgage lenders will not accept child maintenance payments when making affordability calculations – even more so when you consider 48% of divorcing couples had at least one child aged under 16 living with the family.
One lender who is campaigning for ‘mortgage misfits’ to have fairer access to the mortgage market is Ipswich Building Society accepting 100% of child maintenance where supported by a CSA or Court Order with 5 years left to run.
It is also worth seeking lenders who use manual underwriting, a real person who assesses your application on its individual merits rather than relying on a ‘one size fits all’ computer based approach. These are often the smaller lenders and include regional building societies and some specialist banks.
Of course, many separating couples need to address the here and now of their mortgage. They should check the terms of their agreement and make sure they are aware of their obligations – in the event of any financial difficulties it is important to know missing a mortgage payment, or going into arrears (however temporary) can affect the ability to get a mortgage in the future.
Looking to the long term it may be the case one party is able to buy their partner out of their share of the property, taking on the whole mortgage.
When going through the courts the priority will always be to ensure that any children involved have a secure home, and there are several orders the courts may make, many of which require some amendment to the mortgage contract, including: 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.
Whenever a change in circumstance occurs, or in the event of payment difficulty, mortgage borrowers are recommended to speak to their lender as soon as possible. They will work with borrowers to ensure the best possible outcome, and be able to clearly explain obligations.