Divorce and separation mortgage advice
Going through a divorce or separation is never an easy process and can cause considerable strain on your both your emotions and finances.
It can often be made even harder when there are children involved or you have a joint mortgage together. It can potentially lead to proceedings being drawn out over several years or even longer, and it’s therefore essential you are aware of all your options and any implications.
What does divorce mean for your mortgage?
If you have a joint mortgage together, you will both be equally liable for the mortgage payments, even if you have separated and move out of the property.
If you fail to make payments on your mortgage it will damage your credit score and could lead to mortgage arrears, so it’s vitally important that you both continue to pay your share of the repayments.
If you think you may struggle to make the monthly mortgage repayments, it’s important you reach out to your mortgage provider who may be able to offer you a payment holiday.
What are the challenges when separating when you have a mortgage?
Separating from a partner can be a difficult and stressful process, especially when it comes to handling finances and property ownership. Here are some of the challenges you may face when it comes to a mortgage and house during a separation:
Division of assets: One of the biggest challenges in a separation is dividing up assets, including the house. If both partners are named on the mortgage, you will need to work out how to divide the equity and mortgage payments, and decide who will keep the property or if it will be sold.
Financial responsibilities: Even if one partner is awarded the property, both parties may still be liable for the mortgage payments. This means you will need to work out how to divide financial responsibilities and ensure that mortgage payments are made on time to avoid any penalties or legal consequences.
Refinancing: If one partner wants to keep the house, they may need to refinance the mortgage in their own name. This can be difficult if they do not have the income or credit history to qualify for a new mortgage, or if they do not have enough equity in the property to refinance.
Emotional attachment: The house may hold sentimental value for both partners, which can make it difficult to come to an agreement on how to divide ownership or whether to sell the property. This emotional attachment can also make it difficult to negotiate fairly and come to a practical solution.
Legal considerations: Separating couples may need to involve lawyers or mediators to help them come to an agreement on how to divide assets and handle financial responsibilities. This can add to the cost and stress of the separation, but it may be necessary to ensure that all legal requirements are met and both parties are protected.
What are your options?
When emotions are high, it can be tough to make difficult financial decisions, although is important you know all the options available to you.
Sell the property
You can sell the property and take your share of any equity in the property any buy on or rent elsewhere separately. Having children may sometimes prevent this when the properties you can each afford individually are not sufficient to home your children and one parent may chose to remain in the property.
One partner moves out
One partner moves out and the other remains in the property, this can be fairly common when children are involved. Some separated couples may agree that the parent who takes care the children, remains in the property until the children reach a certain age, at which point the property is sold and the equity shared out.
It’s worth mentioning that the person that moves out of the home may struggle to secure a mortgage on another property if they are to remain on the current one and could be liable to additional stamp duty for owning more than one property.
So long as you’re still on the existing mortgage, lenders will still take into account your monthly payments on your ex-marital home, even if the courts have confirmed you are not liable for the payments anymore.
One partner buys out the other
This is option is a popular choice because it can be the least disruptive, however it’s also generally the most challenging to make happen.
In most cases you not only have to be able to afford taking on the existing mortgage alone, but potentially borrow additionally to pay off the other partner.
£300k property – owned 50/50 equally
£200k joint mortgage
In this scenario, assuming both partners are due an equal share, the equity in the property is £100,000. The partner coming off the mortgage would require £50,000 which Is 50% of the equity in the property.
If the partner remaining in the home has no other additional funds they would need to raise £50,000 on their mortgage and take on a total mortgage of £250,000.
The mortgage lender would assess your affordability based on the full £250,000, not just the additional £50,000.
Mortgage lenders usually lend between 4-5 times your income; therefore the remaining partner would likely require an income of around £50,000 – £62,500 to take on a £250,000 mortgage, assuming a relatively young age and reasonable level of outgoings.
One partner gives up their ownership rights
One partner can give up their ownership rights, however they keep a stake in the assets, they then receive their stake when property is sold.
Unless the partner vacating the property can be taken off the existing mortgage, the mortgage payment will be factored into affordability when they come to move.
Are there any stamp duty implications?
If one partner is to remain in the family home and the other wants to buy elsewhere but remain on the existing mortgage, they may be liable to pay an additional 3% stamp duty on the subsequent purchase.
The government introduced additional taxes for those buying second homes, there are potentially some exceptions if the separation is acknowledged by the courts, although it’s certainly worth getting legal and tax advice on the matter.
What is the process of buying out an ex-partner on a mortgage?
If you are looking to buy out your ex-partner’s share of your home during a separation, the process can be complicated and may require legal assistance. Here are some general steps you can expect to take:
Determine the value of the property: Before you can buy out your ex-partner, you will need to determine the value of the property. This can be done through a professional appraisal or by consulting with a estate agent.
Agree on a buyout price: Once you have determined the value of the property, you and your ex-partner will need to agree on a buyout price. This should take into account the equity in the property, any outstanding mortgage payments, and any other relevant financial considerations.
Secure financing: If you do not have the funds available to buy out your ex-partner, you will need to secure financing. This may involve applying for a new mortgage or refinancing the existing mortgage in your own name.
Draft a purchase agreement: Once you have agreed on a buyout price and secured financing, you will need to draft a purchase agreement that outlines the terms of the buyout. This should include details such as the purchase price, the financing arrangements, and any other relevant details.
Close the sale: After the purchase agreement has been signed by both parties, you will need to close the sale. This typically involves transferring ownership of the property and paying the agreed-upon buyout price to your ex-partner.
What costs are involved when I buy out my ex-partner?
You will need the services of a solicitor to have one of the parties removed from the mortgage and title deeds. The fees for this are typically £750-£1,500.
If you’re switching lenders to facilitate removing an ex-partner from the mortgage you may have an early redemption fee on your existing mortgage.
These usually range from 1-5% of the balance on fixed rate mortgages. If you can remain with your existing provider these may be avoidable.
How much can you borrow on a mortgage when separating?
The same affordability rules apply as on any other application, and it will be based on your income and outgoings.
However, there are a few key factors that can play a part, that are not always relevant on other applications. If you have children, you’ll know they aren’t cheap. If you’re separating it’s often the case that one partner will pay maintenance to their ex, usually to cover some of the costs bringing the children up.
Mortgage lenders will usually consider ex-spousal maintenance if you have been in receipt of it for at least three months. If you’re looking to buy out your ex-partner and have not long split, you may not have been receiving maintenance long enough for it to be considered.
You may then find you can borrow considerably less because you will have the children listed as dependents and no maintenance income to support the costs. Therefore, sometimes you may be able to borrow significantly more once you have been in receipt of maintenance for a period of time.
It’s also worth mentioning that the maintenance payments will have the opposite effect for the person paying it and it will need to be considered in their affordability if they are looking to take out a mortgage and liable to make maintenance payments.
How can I improve my chances of getting a mortgage to buy out my ex?
Here are some potential options for improving your chances of being able to buy out your ex-partner during a separation. Here’s a bit more detail on each of those strategies:
Increase your deposit: If you have a larger deposit, you may be able to secure a more favourable mortgage rate or borrow a larger amount, which could make it easier to buy out your ex-partner.
Add savings: In addition to increasing your deposit, having additional savings can also improve your chances of being able to buy out your ex-partner. This can demonstrate to lenders that you have a solid financial position and can afford the mortgage payments.
Family gift: If you have family members who are willing to help you out, a gift of money can also be used to increase your deposit or provide additional funds to buy out your ex-partner.
Joint mortgage: If you have a new partner or family member who is willing to co-sign a mortgage with you, this can also increase your chances of being able to buy out your ex-partner.
Guarantor mortgage: Another option is to apply for a guarantor mortgage, where a family member or friend agrees to be responsible for the mortgage payments if you are unable to make them.
Joint borrower sole proprietor mortgage: This type of mortgage allows one person to be the sole owner of the property, while the other person is a joint borrower on the mortgage. This can be a good option if you want to keep the property but your ex-partner does not.
Speak to a broker: A mortgage broker can help you understand your options and find the best mortgage product for your situation. They can also help you prepare your application and negotiate with lenders on your behalf.
Negotiate with your ex: Finally, it is always a good idea to negotiate with your ex-partner in good faith. If you can come to a mutually acceptable agreement, it may be easier to secure financing and move forward with your plans.
Best mortgage lenders in the event of divorce and separation
The best lender for someone going through a divorce or separation will depend on their individual circumstances. For example, if someone is looking after children and receives maintenance, child benefit, and child tax credits as their main source of income, finding a lender that accepts these as valid forms of income could be very helpful in securing financing for a mortgage buyout or a new home purchase.
It’s important to research and compare different lenders and mortgage products to find one that is the best fit for your situation. And if you’re unsure about the process or need help navigating the options, speaking to a mortgage broker or financial advisor can be a great way to get expert advice and guidance.
Consider other assets and debts
When going through a separation, it’s important to consider all of your assets and debts, not just your home and mortgage. This can include:
Savings: Any savings or investments you have should be taken into account when dividing your assets. Depending on your situation, it may make sense to divide these equally or to allocate them in a way that best suits your individual needs.
Pensions: Pensions can be one of the most valuable assets you and your ex-partner have, and it’s important to understand your rights and entitlements when it comes to dividing them. Depending on your situation, you may need to seek legal or financial advice to help you navigate this process.
Debts: Any outstanding debts, such as credit cards, loans, or overdrafts, will also need to be considered during a separation. It’s important to work out who is responsible for paying each debt and to come up with a plan for how they will be repaid.
Insurance policies: If you have joint insurance policies, such as life insurance or home insurance, you may need to review these and make changes to reflect your new circumstances.
By taking a comprehensive approach to dividing your assets and debts during a separation, you can help ensure that you are able to move on with your life in the best possible financial position.
Disagreements and legal rulings
Disagreements and legal rulings can be a lengthy and contested process when it comes to dividing assets during a separation. This can be especially true when it comes to property, as there may be differing opinions on who should keep the family home, how much it is worth, and how the mortgage should be divided.
In some cases, it may be necessary to involve a solicitor or mediator to help reach a resolution that is fair and equitable for both parties. This can involve negotiating a settlement that takes into account each person’s financial position, contributions to the property, and future needs.
It’s also worth noting that the final outcome may not always be a 50/50 split of the assets. This can depend on a range of factors, including each person’s financial contributions, needs, and the circumstances of the separation.
For example, if one person has primary care of the children, they may have the right to live in the family home until the children are older, even if they do not own a 50% share of the property. This can be a complex issue and may require legal advice to help navigate.
How can Strive Mortgages help?
We fully understand the implications separation and divorce can have when you have a joint mortgage. Moving home and divorce are regarded as two of the three most stressful events in someone’s life.
Having a mortgage broker who fully understands the challenges at hand and to help you understand all the options available to you can of real comfort. Here are some ways that a mortgage broker can help:
Provide expert advice: A mortgage broker can offer guidance on the different mortgage products and lenders available, and help you understand your options based on your financial situation and the circumstances of your separation.
Access to specialist lenders: In some cases, a specialist lender may be needed to secure a mortgage in the event of a separation. A mortgage broker can help identify lenders who may be willing to consider your application, even if you have a non-traditional income source or other complexities in your financial situation.
Negotiate on your behalf: A mortgage broker can work with lenders on your behalf to negotiate better rates, terms, and conditions for your mortgage. This can help ensure that you are getting the best possible deal and save you time and effort in the process.
Help with paperwork and applications: Applying for a mortgage can be a complex and time-consuming process, especially during a separation. A mortgage broker can help you navigate the paperwork and application process, making it easier and more efficient.