Once Christmas is done and dusted it may not surprise you that the first working Monday in January is when legal firms see a surge in divorce related enquiries.
And when 42% of marriages end in divorce it is worth considering the effect this has on your finances.
When separating from a partner your mortgage may be the last thing on your mind, but the 2014 Mortgage Market Review imposed stricter affordability criteria which meant divorcees have found themselves in a group termed ‘mortgage misfits’ finding it hard to obtain a mortgage.
It is not just down to a reduced household income, but also due to the way mortgage lenders assess child maintenance payments – some lenders fail to consider this in their affordability calculations.
And, with 2.8 million UK households consisting of lone parents, this excludes an income source for those taking on the main childcare responsibilities – meaning mortgage applications may be judged solely on an often part-time employment income.
But there are a few mortgage lenders out there who will accept 100% of child maintenance payments in addition to employment income when calculating affordability. One of these is Ipswich Building Society.
It is also worth seeking out a lender who uses manual underwriting – not a computer based decision system. This means they’ll be able to look closely at your individual circumstances and not instantly dismiss anything which doesn’t tick a box.
Of course, when it comes to divorcing a partner with whom you hold an existing joint mortgage, if neither party is able to buy their partner out of their share of the property there are several orders the courts may make. As a priority this will be to ensure any children involved have a secure home.
Options may include transfer of ownership, with lesser share of possessions; retaining joint ownership but giving one party the right to stay; transferring the home to one party but with a charge secured on the property (ensuring the other party receives a set percentage when the home is sold); or selling the home and splitting the proceeds between both parties in whatever proportions are deemed fair.
Many of the options will require some changes to your mortgage contract, so it is advisable to speak to your lender as soon as possible. You should also check the terms of your mortgage agreement and be aware of the obligations of each named party.
Finally, during a relationship breakdown there may be financial pressures – which mean you could find it hard to afford your mortgage. Again it is important to speak to your lender in the first instance. Missing any scheduled payments or going into arrears, even temporarily, can affect your credit and ability to get a mortgage in the future.