A divorce is never a convenient event to go through, but getting a divorce while still under a mortgage contract can be even more inconvenient.
Both parties in a joint mortgage will be equally liable for repaying the debt till it is settled. Meaning going through a divorce doesn’t exempt you from repaying your mortgage loan. You have to keep up with the monthly payments even if you no longer live in the mortgaged property.
Failure to make mortgage payments as at when due will result in damage to both you and your ex-partner’s credit history. Leading to losing more than just your marriage.
This is why it is advised that divorcing couples inform their mortgage lender about their separation, especially if there will likely be issues with meeting mortgage payments. Many modern banks are sympathetic towards couples in such a situation especially if they were diligent with their payments beforehand. A sympathetic bank may offer the separating couple a mortgage payment holiday to help ease the financial strain of the transition but please ensure you check with that lender to see if this will affect your credit rating adversely. If you do take up the option to take a payment holiday then interest is still charged and your mortgage balance will continue to rise as you are not making any payments.
You may be thinking a mortgage combined with a divorce is something you’ll never have to deal with. But according to the Office for National Statistics, 42% of marriages end in divorce, which means it’s something worth being mentally prepared for, especially regarding how such an occurrence might impact your home ownership and mortgage.
This guide will provide all the pertinent information you need concerning divorces and mortgages. We can also put you in touch with a specialist over the phone to discuss your options.
Is It Better to Sell My House Before a Divorce?
On paper, a smart and uncomplicated move would be to sell the house, use the proceeds to pay off remaining mortgage debt, split what’s left with your ex-partner and go your separate ways. But in reality, such an approach doesn’t take into consideration lingering emotional connections to the property (sentimental value). And for those with children, such a move can result in a logistics nightmare.
If it so happens you or your partner would like to take over the mortgage instead of let go of the house after the divorce, there are a variety of options available to help ease things along. For instance, you could opt for a simple remortgage or if you are tied in to your current mortgage deal and have Early Repayment Charges then ask your lender if you can take over the mortgage in your sole name. There will be a Transfer of Equity involved with this and you will need to financially qualify for the whole mortgage yourself in order to take it over but please ask your bank first.
But before any moves are made concerning solely taking over the mortgage debt of your home, first and most important thing to do is talk it over with your present mortgage lender.
If this fails, speak to an independent mortgage broker who may have a lender who can help.
Speak to Your Lender
Speaking to your lender about your private marital affairs may seem awkward and inconvenient, but it is nonetheless important. A sympathetic lender will offer a payment holiday to help you with managing the financial burden of the transition.
But bear in mind that responsibility of the mortgage will still lie with you till a longer term solution to your mortgage situation is reached. Ignoring your repayment responsibilities during the divorce process can lead to your home being repossessed.
Consent Orders and Financial Orders
If you are fortunate enough to go through a divorce that is amicably settled, you and your partner can mutually agree on how the finances and property will be divided. This will be noted in a legally binding Consent Order drafted by a solicitor and signed by you and your ex. A consent order typically costs £50.
But where the divorce is not an amiable one and you can’t come to an agreement with your ex-partner, you can apply to the courts for a Financial Order. The process of getting a Financial Order and the divorce process will run separately. It can also take as long as a year depending on circumstances. A number of court hearings may have to be attended and the process will typically cost £255
Can My Ex Sell Our House?
If your soon-to-be ex is the sole owner of the property, he/she actually has the power to sell the house. Fortunately, you can register a Notice of Home Rights with the Land Registry to protect your right to keep living in your home. To successfully accomplish this, you will need to verify whose name the property is registered in as well as the property’s title number.
Regardless if the property is registered or unregistered, registering a Notice of Home Rights with the Land Registry is free. But bear in mind that it only offers short-term relief. That is, it only ensures your right to keep living in the property in question till the divorce process is finalised and a court settlement reached.
If the court makes a ‘continuation order’ because of an on-going dispute regarding who owns the property, you may be able to stay in the property for longer.
Sorting Out a Joint Mortgage
In most cases, divorcing couples with a joint mortgage attempt arranging for the mortgage to be under the name of only one of the partners.
Whether or not such an arrangement will be accepted by the lender will depend on the financial circumstances of the individual looking to take over the mortgage debt.
But if accepted, the advantages of such an arrangement include:
- The person retaining the house will not have to deal with the complication of waiting or relying on the ex-partner for mortgage payments.
- The person taken off the mortgage will have an easier time getting another loan to purchase another home compared to if they were to remain under the initial mortgage with their ex-partner.
- Either partner can break the connection that binds their credit files to one another. For instance, a joint debt such as a mortgage or loan with you ex-partner will result in your credit files being linked, resulting in one party’s credit history affecting the other party’s ability to apply for credit.
Divorce Mortgage Buyout
Under a joint mortgage, the credit scores of both spouses will be affected if repayments are not made. This occurs regardless if neither party still lives in the house.
To retain ownership of the property, you will need to take over the mortgage after the divorce by proving to the bank that you are making the mortgage payments on your own at due dates. Even if you prove that you can afford the current mortgage on your own, there is still a likelihood that you will need to request for a larger loan so as to buy out the stake of your ex-partner in the property.
A Transfer of Equity will also be needed to change legal ownership of the mortgaged property. This will take the name of your ex-spouse off the joint mortgage. You can approach a solicitor or a DIY Transfer of Equity pack to get this done.
Getting a Mortgage After Divorce – Guarantor Mortgages
If after going through a divorce you have trouble coping with cost of the mortgage on your own, you can opt for a guarantor mortgage. Under a guarantor mortgage, a close relative or perhaps your ex-partner will agree to guarantee the mortgage payments in the event you fail to pay. The guarantor in such an arrangement typically has to offer their own property as collateral, so that the lender can pursue the guarantor for the unpaid debt in the event you default in payment.
Guarantor mortgages are also a viable option if your decision is to sell the mortgage property and buy a new property elsewhere. But bear in mind that not all lenders are keen on offering guarantor mortgages. Most prefer to offer a joint mortgage under which the parent, sibling, or other party will be a joint borrower and owner alongside the divorced applicant.
Specialist Divorcee Mortgages
Specialist divorcee mortgages are a relatively new phenomenon. Yorkshire Building Society’s Fresh Start range charged minimal rates of interest in the first couple of months but then the interest rate does increase after 6 months so please make sure you are able to afford the payments after the first 6 months.
Unfortunately, finding such a mortgage arrangement today will be difficult. But some mortgage providers still offer certain initiatives that assist divorcee borrowers. To find such a mortgage deal, get in touch with a reputable mortgage broker to see what options are available.
Child Maintenance and Your Mortgage
When it comes to child maintenance and mortgages, it all depends on your lender’s policy. The lender may take into consideration a 100% of child support payments, or only a percentage of it, and in rare cases, not consider it at all when evaluating a divorced borrower’s capability to repay the applied for mortgage. In order for the lenders to take maintenance into consideration it will either need to be court ordered, paid regularly or paid under Child Support Agency.
There are also some borrowers that only take child support into consideration if it has been ordered by the court or it’s already being paid for at least 12 months. A mortgage broker can provide you professional advice concerning what your best options are in such a scenario.
If you would like to make an enquiry now concerning divorce and mortgages, please contact us today and one of our mortgage experts will get in touch with you ASAP.
- Divorce and Mortgages: What to Know - 29th October 2018
- How to increase the value of your home through renovation - 23rd August 2018
- Natwest increases cost of fixed rate deals - 13th April 2018
- Bridging and Buy to let combination deal Launched - 13th April 2018