A guide to mortgages and divorce.
If you’re going through a divorce, one of the biggest challenges you may face is figuring out what to do with your home and mortgage. Whether you’re trying to decide whether to keep the home, sell it, or refinance it, navigating the mortgage process during a divorce can be complicated and stressful.
This guide is designed to help you understand mortgages and divorce, and to give you the information and guidance you need to make the best decisions for your situation.
The guide will also provide you with tips for preparing for a mortgage application, such as how to gather and present the documentation required and the importance of a Mortgage Capacity Report for divorce. And finally, you’ll learn about the role of a mortgage broker or lender in the process, and what to look for when choosing one to work with.
Keep in mind that this guide is only a general overview of the process and every persons case will be unique. It’s important to seek independent legal advice, and if you need a new mortgage to buy someone out of a house, you might want to work with an independent mortgage broker, such as Drake Mortgages.
Understanding Mortgages and Divorce
In the UK, courts have the power to divide matrimonial assets, including the family home and mortgage, in a way that is fair and reasonable to both parties.
This means that the court will consider a variety of factors when determining how to divide the assets, including the income, debts, and needs of each party, as well as the length of the marriage and any other relevant circumstances.
It is important to understand that even if you and your spouse have agreed on how to divide the assets, you will still need the court to approve the agreement and issue a formal order.
It is therefore important to seek legal advice from a solicitor, who will be able to guide you through the process and help you understand the laws and regulations that apply to your situation.
In addition to the divorce laws, it’s also important to be familiar with how mortgages work.
Anyone named on a mortgage will be liable for the mortgage payments, in conjunction with any other named parties.
And while it is possible to take out a second home mortgage while remaining on the matrimonial home mortgage, it’s a bit trickier to get these approved.
Determining the Best Course of Action
There are a few options available to you when it comes to your home and mortgage. It’s important to consider the different factors that may be affecting your decision, such as your ability to afford the mortgage payments, your credit score, and the overall market conditions.
One option is to sell the property and divide the proceeds between you and your spouse. This may be the best option if neither of you can afford the mortgage payments on your own or if neither of you want to keep the property. Selling the property can be a good way to divide your assets and to move on with your lives.
Another option is for one party to keep the property and to refinance the property using a transfer of equity mortgage in their own name. This can be a good option if one party is able to afford the mortgage payments and would like to keep the property. However, it’s important to consider whether the lender will approve a new mortgage application, and if the value of the property is enough to cover the outstanding mortgage debt.
Finally, a third option is for both parties to agree to keep the property together, and to continue making the mortgage payments together. This option can be a good one if both parties agree on it, but it can also come with challenges if both parties can not agree on how to handle the mortgage payments or if one party wants to sell the property and the other wants to keep it.
Who Pays a Joint Mortgage After a Separation?
When a couple take out a joint mortgage on a property, both parties are responsible for repaying it, even after separating, until it is fully paid off or one of them is removed from the mortgage. This is true even if one of the parties is no longer residing in the property.
What’s a Mortgage Capacity Report?
This is a personalised report issued by a qualified mortgage broker that explains the mortgage amount you will be able to borrow after divorcing.
It is commonly used as formal evidence in divorce cases.
Transfer of Equity
One of the most common options is to transfer the equity from one party to the other, which means that one party’s ownership (equity) in the property is transferred to another party without selling the property. This is often done in a divorce as a way of transferring ownership of the property from one spouse to the other.
To change a joint mortgage to just one person, the person remaining will need to apply for a transfer of equity mortgage, with the help of a solicitor.
This will be classed as a remortgage as it does not involve moving house. Providing that it is affordable, the remortgage amount could be higher to raise the money needed to buy out the other party.
Once the mortgage offer is issued the solicitor can pay off the old mortgage and apply to update the details at Land Registry.
Do you pay stamp duty on a remortgage? – This is a question for your solicitor. Make sure you fully understand any liability before you apply for a mortgage.
Changing who is on a mortgage is just one of many alterations that you can make when remortgaging. Why not take a look at the Top 8 acceptable reasons for a remortgage.
Who is liable for the mortgage?
When it comes to determining liability for a mortgage, it is important to understand that if you and your partner have jointly applied for a mortgage, the property will typically be held in both of your names.
In this scenario, both parties will be responsible for the mortgage payments, regardless of whether one of you is currently living in the property.
It is important to note that if payments are not made, the lender has the right to pursue either party, or both, for the outstanding balance, and this can have a negative impact on both parties’ credit ratings.
Preparing for a mortgage application
When applying for a mortgage during a divorce, you should spend some time preparing the necessary documentation and information.
One of the most important documents you’ll need when applying for a mortgage is proof of your income and employment. This can include payslips, bank statements, and P60s. Or if you are self-employed; SA302s.
In addition, you will be required to provide information about your debts and other financial obligations, such as credit card balances and outstanding loans.
As part of the underwriting process, the lender will do a credit search. This is a history of your loan and credit transactions over the last 6 years. If you are unsure what this could look like then its best to obtain a copy of your credit report before applying.
Use a whole of market mortgage broker, as they can search through thousands of different deals on your behalf. Your broker can also prepare your mortgage application and make sure that your paperwork and credit report are in good shape.
Working with a mortgage broker
Working with a mortgage broker will take the pressure (some of it) off of you. A mortgage broker is a professional who specialises in helping individuals and families obtain mortgages. They can assist you in finding the right mortgage product for your needs, and can help you right through the application process.
A mortgage broker will take the time to understand your financial situation and your needs, and will use their knowledge of the mortgage market to find a mortgage that is right for you. They can act as a liaison between you and the lender.
When working with a mortgage broker, you will need to provide them with information about your income, debts, and credit history. They will then use this information to help you find a mortgage that is suitable for your circumstances. They will also be able to advise you on the various mortgage products available, and will be able to explain the pros and cons of each one.
It’s important to note that a mortgage broker is not a lender and do not make the final decision on your mortgage application, but they can help you to understand the requirements and the process and help to improve your chances of getting the best deal.
By working with a mortgage broker, you can be confident that you are getting the best advice and service when it comes to applying for a mortgage during a divorce.
They can also be a valuable resource for understanding the legal and financial aspects of a mortgage during a divorce. It is important to keep in mind that it is your responsibility to review and understand the terms and conditions of any mortgage product you choose and that a mortgage broker’s role is to assist and inform but the final decision should be always yours.
Can I remortgage to buy my partner out?
Yes this may be possible and buying out a partner in a mortgage is a popular option for many people. You will need to make a full mortgage application and pass the lenders underwriting and affordability checks.
Is a house split 50/50 in a divorce?
Contrary to popular belief, there is no set rule that dictates matrimonial assets must be divided equally between parties upon divorce.
The next steps
According to the Office for National Statistics, over 80,000 divorces were granted in 2022.
Going through a divorce can be a difficult and stressful time, and dealing with your home and mortgage can add to the complexity of the situation. However, with the right information and guidance, you can make informed decisions about your home and mortgage during your divorce and move forward with confidence.
In this guide, we have discussed the laws and regulations that govern mortgages and divorce in the UK, and the different options that are available to you when it comes to your home and mortgage. We have also discussed the importance of a Mortgage Capacity Report and working with a mortgage broker or advisor.
Being prepared and organised will help the process go more smoothly, but we appreciate that this is easier said than done.
Nevertheless, working with a good divorce lawyer and an experienced broker will allow them to provide excellent advice, support and take on some of the burden.
For an initial discussion, please call us on 020 8301 7930.
This guide is only a general overview of the process and you should always get your own independent legal and financial advice.