Posted on 5 August 2014
Divorce is one of the more stressful reasons for changing your mortgage arrangements. This is a very personal process, and can also be a potentially expensive one. Divorce normally ends up with re-distribution of assets and income, and often the former matrimonial home has to be sold with both partners seeking new accommodation.
It is very rare that the parties in the divorce will continue on an equal financial standing and in some circumstances one of the ex-spouses will be working and the other spouse will be looking after any children or will have a limited working ability. Both partners should seek independent financial planning and tax advice to make sure the best outcome is achieved. It’s also important to look carefully at the mortgage arrangements and consider all the options.
The main consideration is normally the division of the assets - more specifically, the former matrimonial home.
If there are any children involved then the former matrimonial home quite often remains with the spouse looking after any minor children. In most cases both parties agree that a certain lump sum is paid to the outgoing party. Usually, the spouse remaining in the property will have to refinance or re-mortgage the former matrimonial home to raise the money required to pay off the other spouse or at least to transfer the ownership into a sole name. This usually has to be done by a certain date or if certain event occurs, i.e. children have reached 18 years of age or the spouse remarries.
If the property is jointly owned during the process, the outgoing spouse will transfer his or her share to the remaining spouse. The remaining spouse will need to apply for a mortgage in their sole name, which will also include repaying the debt to the former lender and raising money to pay the share to the existing spouse and further advance for settlement of solicitors’ bills.
If only one spouse is on the mortgage deed and the other one is not, then this type of mortgage will be deemed a concessionary purchase as the purchasing spouse does not have to provide physically the money for the deposit. The equity in the property passed from one spouse to the other will serve as a deposit. The recipient may have to pay stamp duty on the purchase price or market value, not only on the mortgage amount they are raising.
On rare occasions, the judge may order that the outgoing spouse does not receive a cash payment now, but a deferred one and their interest is preserved by being entitled to a share of the property when the other party remarries or when the property is sold.
The judge normally tries to take into consideration the financial position and wellbeing of both parties, so as not to leave one financially deprived.
In such cases, we have seen a great number of ex-spouses remaining on the mortgage and the deeds, to help the financially vulnerable party. Although this is not an ideal solution, a number of lenders will consider lending on properties where one of the parties does not reside in it. For the ex-spouse whose income is being used, the lenders will assess and take into consideration whether they can in fact support two households, regardless of whether their current accommodation is rented or mortgaged.
If the ex-spouse continues to reside at the former matrimonial home but plans to purchase a property on their own, then having an existing mortgage will impact their future ability to borrow as both mortgages are residential.
Occasionally a member of the family might be able to help with a brother or a sister joining in with the remaining spouse to boost their income and their ability to borrow.
At John Charcol we have helped thousands of people through the highs and lows of life, offering a sympathetic ear, but most of all, a professional independent opinion. Whatever your situation may be, do speak to us and see how we can assist.
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