Here Are Your Mortgage Options Following a Separation or Divorce
Written on 24 October 2022
Having a breakdown in a relationship or marriage is never easy. Figuring out how you move forward, and what conversations you need to have with dependents, friends and family is often difficult. This can become even more complicated when the next discussion involves the financial commitments you share with your former partner such as the family home and mortgage.
This blog will not have all the answers as everyone’s circumstances are different, but this should give an insight on what to consider.
What Happens to the Home During a Divorce?
For those married and those in a civil partnerships, the laws that are in place now are typically straightforward: for any assets you equally share these are split in half following a separation.
In principle, assets are equally shared on a 50:50 basis; in practice, it is subject to negotiation and/or Court review, particularly where there are dependents (children) or “discussion” (dispute) over financial contribution during the course of the marriage.
The Courts, rightly, prioritise the needs of children, with whom they domicile, and their needs, until 18, in reaching a decision. It’s in the interests of all parties to seek to reach a mutually agreeable decision.
If one spouse sacrificed career development in order to prioritise childcare they are likely to find this process particularly challenging; conversely, if one partner was the main breadwinner of the household they may, realistically, have to reconcile that their past, existing and future contribution (potential or actual) will be assessed against mutual housing needs in the short-term (particularly where children are involved - and the children's needs will be weighted appropriately).
It's very important to seek legal advice around the elements of ”Clean Break” and ”Maintenance” during resolution of a divorce; every situation is unique.
Further, an experienced mortgage broker can help you navigate your situation and you should be amenable to each party providing a Mortgage Capacity Report (this details your respective mortgage affordability and is submissible to Court).
So, what does this mean regarding your options?
- Sell the property and equally share in the equity
Typically, this is often the easiest and cleanest route to go down.
Sell the property, clear the existing mortgage balance and split the equity equally between both parties, allowing you both to go your separate ways.
You can also look to use the equity to clear any joint commitments or debts as part of the process such as a car loan or loan that was taken out for home improvements that both parties would have benefited from.
Agreeing when and at what price to sell the property is often where issues arise; one may want a quick sell while the other is looking for the best price to get as much equity out of the property as possible. It’s important to lay expectations before the sale of the property to avoid any issues.
It’s also worth considering other costs as part of the sale that will eat into any equity such as early repayment charges for clearing the mortgage, legal fees, moving costs, estate agency fees, etc.
- Agree to buy out the other party
In the event that the sale of property isn’t agreed due to one partner wanting to remain in the home - this typically occurs when children or other dependents are involved - it may be possible to transfer the mortgage from joint names to sole.
The key factor here will be if the person taking on the mortgage will be able to raise the funds needed with the existing lender to take on the mortgage in addition to any additional funds to pay off the party.
Lenders have no legal requirements to move a mortgage between parties due to a breakdown in a relationship; their focus is to ensure the mortgage will be affordable.
A mortgage broker will be able to liaise with your existing lender to discuss a transfer of mortgage property (TOMP) or help you find a new lender and deal.
In the event the existing lender does not feel the mortgage will be affordable in a sole name, a broker will be able to review the market and advise if there is a suitable lender you can remortgage with to allow you to buy out the other partner.
- Continue to both occupy and pay the mortgage
Another option, whether this is for a short or long period, is for both individuals to continue living in the property while a decision is made on the next steps. Naturally this comes down to your situation, circumstances and how amicable the relationship is.
In England and Wales you can get what is known as a Mesher Order.
“A Mesher Order is a court order that says how the family home will be dealt with after divorce. A Mesher Order allows the sale of the family home to be pushed back for a certain length of time or until a specific event takes place; such as the kids leaving school.
When a marriage breaks down, there are often finances and property to deal with. The Courts in England and Wales have wide ranging powers on deciding how finances are divided between a couple. There are numerous options available when dealing with assets, including what happens to the family home.” (Co-op Legal Services)
What if Neither Party Can Afford the Mortgage in Sole Name?
In the event neither partner can afford the mortgage in their sole name due to level of income, the options available to you will come down to how amicable the relationship is and if there is a will to compromise – this is often the case when dependents are involved.
As mentioned in point 3 above there are options should you want to avoid selling the property straight away. Another potential option is that both parties agree to keep paying the mortgage for a set period while the one partner lives in the home with the children and the other partner lives separately.
Consequences Worth Considering
Following a separation, it’s important to ensure you continue to make your monthly repayments even if you’re still figuring out your next steps.
Any missed payments can have an adverse effect on both your credit scores and affect any future applications.
In the event one partner chooses not to pay and you’re worried about maintaining the payments at the current level, it would be worth speaking with your lender as they’ll be able to review your options.
Can I Get a Mortgage After a Separation?
Although you may not have been able to raise a mortgage to purchase your previous family home outright, this shouldn’t put you off trying for a mortgage in your future. Circumstances and commitments at the time may have limited your options and speaking with a broker is the best way to see what options are available to you now.
Use our How Much Can I Borrow? calculator to assess the maximum amount you could potentially borrow. A general rule of thumb is 4.5x your income. Some lenders can even consider maintenance payments, benefits and part times roles as part of your income.
Their may be other schemes to help support you that you weren’t aware of previously such as shared ownership, joint borrower sole proprietor and Help to Build.
How to Protect Yourself
Entering any joint financial obligation carries with it its own considerations. It’s important to consider these steps when entering into any future financial commitments with another party. That way, you can feel secure knowing you’ve done everything within your power to ensure there is an amicable agreement in place in the event of separation.
- Have an open conversation
Talking about our finances is often seen as a taboo, but it’s important for both individuals to understand each other’s circumstances before entering any commitment. Talking about your income, any debts, protection and insurance, will add value on so many levels.
For example, if one party has debt they are still paying off, it would be worthwhile to ensure these are paid or cleared before taking on any new commitments. Equally, when it comes to insurances you may find that one partner’s bank account covers the other partner, avoiding the need to pay for insurance twice.
Fundamentally it will build trust and make sure that you’re both on the same page.
- Declaration of Trust
A Declaration of Trust or Deed of Trust as it’s commonly known is a legal document drawn up by a solicitor. It sets out how the equity in the property will be divided in the event of a remortgage or sale.
- Managing your finances
Make sure you can account for your contributions and keep a record of these. In the event of any separation - whether amicable or not - you want to ensure you have clear documents stating what you have paid for.
- Being a secret squirrel
Although the saying is commonly associated for someone working in covert operations or intelligence, having a separate fund can prove vital in the event you need to leave the relationship. How much you save is down to the individual but like an emergency fund keeping 3 months’ worth of outgoings would be prudent.
If you do this, bear in mind that, as part of the Form E, Financial Declaration, which is legally enforceable (with consequences), that any/all financial resources must be declared and can be independently sequestered.
All parties should ensure that they truthfully declare their financial status but also seek to ring-fence their independence and protect themselves during the divorce process. There are organisations that can help with guidance and support, together with independent legal advice.