'Divorce mortgages' cash in on Christmas bust-ups
Posted on 4 January 2016
January is the peak season for divorce, and mortgage lenders have woken up to the needs of the newly-single
January, and the first working Monday of each new year in particular, typically bring a huge spike in the number of couples filing for divorce.
And now, a mortgage lender is cashing in on the post-holiday divorce surge by offering "more favourable" affordability checks for the newly single who are in receipt of child maintenance payments.
Ipswich Building Society is promoting its Divorce Mortgage Programme, which it said will provide support for “mortgage misfits” – those often overlooked by other banks and building societies.
Some lenders do not accept child maintenance payments as a source of income, making it more difficult for single parents to qualify for a loan.
Ipswich said all of its residential mortgages will be available to divorcees who work full or part time, with 100pc of the income from child maintenance taken into account when assessing affordability.
The maintenance payments must be supported by the Child Support Agency (CSA) or a court order, and must have at least five years left to run.
In contrast Coventry Building Society, for example, will not take maintenance income into account even when they are backed up by a court order.
Santander and Accord, part of Yorkshire Building Society, will only count 50pc of the maintenance payments towards total income. They typically require the payments to be backed by a court order, the CSA, or a solicitor’s letter confirming the payments, along with bank statements showing a strong track record of the payments being made.
Halifax, Barclays and Metro Bank will take 100pc of confirmed maintenance payments into account.
David Hollingworth, of brokerage London and Country, said single parents can run into problems if the mortgage term is longer than the scheduled maintenance payments.
“These payments are to help look after children, so they usually run until a child turns 18,” he said. “If the payments are due to stop before the mortgage ends, lenders could ask for evidence of additional income to support the loan.”
Even though some lenders are happy to accept maintenance payments as income, it can still be extremely difficult for newly single parents to secure a mortgage.
Anya Harris, 51, knows all too well the financial problems that divorce can bring.
She bought a £210,000 house with her husband in 2006 with £189,000 that she raised through the sale of her previous property. They took out a joint interest-only mortgage for £30,000, with her £200,000 private pension as the repayment vehicle.
She wasn’t working at the time, having given up her job at an international money brokerage in the City, and was looking after their one-year-old child full-time.
The property needed a lot of work, and over the next few years the couple increased their borrowing to £100,000. Despite this, the repayments only totalled £150 a month.
In December 2008, the couple separated. At the time Ms Harris was pregnant with their second child and was not working. She said she continued to make the repayments, with only occasional financial support from her former spouse, partly funded by taking in foreign language students as lodgers and some freelance writing work.
The couple divorced in 2010 and Ms Harris was keen to move the mortgage into her sole name. She spoke to her lender, Barclays, but as she didn’t have sufficient income, it refused her request based on affordability concerns.
“I was making the monthly repayments myself, with no financial help from my former spouse,” Ms Harris said. “My own private pension, which I built up prior to our marriage, was to be used to pay off the capital, so I couldn’t understand why I didn’t meet their affordability criteria.”
Ms Harris returned to work this year, employed by the NHS in its finance department. Her former spouse now voluntarily pays £50 a week in child maintenance payments, which is not enforced by a court order.
Barclays said that she could switch the mortgage to her name if she moved to a repayment loan, but this would see her repayments shoot up to over £700 a month.
“It’s just not affordable,” she said. “I only need a mortgage for another four years, when I will be able to access my pension savings and can then pay off the loan in full. But I’m struggling to get a new interest-only loan that will take account of the child maintenance payments as well as my other sources of income.”
And it’s not just the parent who stays in the house looking after the children who can struggle to obtain credit.
Those paying child maintenance can also find it more difficult to borrow. Typically lenders deduct the cost of the maintenance payments from their annual income when assessing affordability.
And of course, if the original mortgage falls into arrears, both parties could see their credit rating dive.
Ray Boulger, of brokerage John Charcol, said if the mortgage is in joint names, both partners remain liable for the repayments no matter who stays in the home.
“As far as lenders are concerned, both parties are jointly responsible for the repayments,” he said. “There is no such thing as ‘my half’ and ‘their half’. They don’t care what the details of the break up are, they just want to know that the repayments are being met.
“So it is in both parties’ best interests to keep up with the repayments, even if you have to grit your teeth to do so, because if arrears build up you could really struggle to move the property into your own name or buy a new property elsewhere in the future.”
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