Posted on 8 November 2016 by Paul Elliot
I’m named on a mortgage with my ex-wife but do not pay towards it. Following our divorce settlement my ex-wife was instructed to indemnify me against liability should she default on payments but I understand that this is a civil arrangement that won't necessarily be recognised by a mortgage company. The size of that mortgage is £240,000 on a house valued at £450,000.
In my previous role I was earning significantly more money than I am now. When my wife and I separated she was allowed to remain in the house but her income was too low (and still is) to support a mortgage in her own name. Despite this, with interest rates so low and having switched the mortgage to interest only on a base rate tracker product, she has been able to continue paying it for the past 8 years or so.
I am now in a relationship with somebody else and we've been renting properties for the past eight years. I'm about to be given a payment of £50k and I would really like to get back on the property ladder again, however, I fear that being named on another (substantial) mortgage will prohibit me from doing so. Are my fears are justified or am I missing something?
Thanks for coming to John Charcol - to answer your question, it’s very likely that your mortgage company will continue to treat you as a joint mortgagor. Under normal circumstances, unless you are released from the mortgage contract, you remain liable for the full mortgage payment. The knock on effect is that this mortgage will almost certainly be factored in to any affordability calculations for your proposed new purchase.
That said, the way in which lenders will view this mortgage commitment can and will differ with some treating the mortgage as a monthly financial commitment rather than factoring the outstanding balance in to an overall lending calculation. If the mortgage is now on an interest only basis and on a relatively low rate of interest, this could mean that the mortgage payment is no more erroneous to your new application than any normal unsecured debt may be.
In this situation, it may be possible for you to get back on to the market subject to normal lending criteria and affordability calculations. I would recommend completing a budget planner with a mortgage adviser so you can get an accurate understanding of your new borrowing capacity – they will then be able to advise you on the options which are available to you and your new partner.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
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