According to legal firms divorce enquiries peak on the first working Monday in January – now known, rather predictably, as ‘Divorce Day’ (what else). Presumably the festive tension has come to a head and it’s time for New Year, New You. So, with 42% of all marriages ending in divorce what does this mean for your chances of getting a mortgage post separation?
A little bit of history
In 2014 a big piece of regulation changed the mortgage world – the 2014 Mortgage Market Review. It means lenders are applying stricter affordability calculations, assessing applicant’s incomes and outgoings to judge affordability not only now but also for future rate rises. By these new criteria many divorcees have found themselves ‘mortgage misfits’; a term coined for those finding it difficult to access the mortgage market.
What this means in practice
Inevitably one of the common impacts of affordability post-divorce is a reduced household income. But, when you consider 48% of couples divorcing had at least one child aged under 16 living with the family it seems at odds that many lenders fail to accept child maintenance payments when assessing affordability.
You may also benefit from finding a lender who uses manual underwriting rather than computer based assessments. They will be able to look at your individual situation rather than using a one size fits all, or computer says no, model.
The good news is there are a handful of mortgage lenders who will accept 100% of child maintenance payments in addition to employment income when calculating affordability. One of these is Ipswich Building Society, who use a ‘common sense’ approach to mortgage applicants and accepts 100% of child maintenance, where supported by a CSA or Court Order with 5 years left to run.
What happens to existing mortgages
If you are separating from a partner with whom you hold an existing joint mortgage one of the simpler ways to do this is for one of you to buy the other out of their share of the property, and take on the mortgage. However this is often not practical. Instead there are several orders the courts may make, but their priority will be to ensure children involved have a secure home.
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.
Many of the options require changes to your mortgage contract, so you should speak to your lender as soon as possible. Of course, you should also check the terms of your mortgage agreement and be aware of the obligations of each named party.
Difficulty paying your mortgage
If you experience financial pressures during a relationship breakdown it could make it hard to make your mortgage payment. Be aware that missing any scheduled payments or going into arrears, even temporarily, can affect your credit and ability to get a mortgage in the future. You should always speak to your mortgage lender at the first opportunity to discuss your options.
Maggie Harris says
Simple answer: rent ….. Made me happier and I didn’t even get divorced :)