Divorce is one of the most common reasons for repossession alongside unemployment. A divorce, like unemployment can leave the divorcee with a significant and sudden loss of income.
Divorce is one of the most common reasons for repossession alongside unemployment. A divorce, like unemployment can leave the divorcee with a significant and sudden loss of income. Neither losing your job or splitting from your partner can be planned for and both can for some, happen with little warning.
Getting divorced is an emotional shock but it is also a crucial moment in your financial life if you own a home with your partner. The priority if possible, should be to keep up with mortgage payments as any arrears can badly affect your credit rating and leave you struggling to buy another home.
Next, is what to do actually do with the house and who is liable for the mortgage payments.
If you are jointly liable then it is likely you will want to get yourself out of this arrangement so with the help of a good solicitor, you should approach your mortgage lender immediately.
Lenders are fully aware that divorce can lead to problems and could offer some limited forbearance on payments or solutions.
Going solo
You can check if one income is sufficient to take on the mortgage alone although this will likely increase monthly payments significantly by taking on your partners share.
If maintenance payments for children are involved in any divorce settlement then lenders will usually take this into account as a source of income.
Some lenders will accept the partner giving up their rights to the mortgage to act as a guarantor and retain some liability in order for person to be able to take the property.
If you are able to take on the mortgage alone then your partner may feel entitled to a share of the house already paid off and this may need to be settled.
Alternatively if you have a lot of equity in the home and a decent income then you may be able to get a better mortgage rate.
It is a good time to speak to your broker and shop around the market, particularly as interest rates have fallen so dramatically in recent years.
Two-year fixed rate mortgages can be under 2 per cent at 60 per cent loan to value while five-year fixes can be under 3 per cent at the same equity. It could be a financial opportunity if you are in the right place so a broker should be your first port of call.
Sell up
If your income means you can not continue with the mortgage alone then a sale of the house may be the best option.
A simple house sale means the proceeds can be divided and both can move on with your lives but they sales are not straightforward and can take some time to go through.
There is an added complication regarding capital gains tax that sometimes comes into effect during divorces.
Capital gains is not normally applied on your first home unless you have left more than three years ago, have bought another house and moved out or work from home in your own business.
It means that if you have moved out of your marital home and bought another property while waiting for a house sale you could be liable for capital gains tax.
Divorces are messy and a key driver of repossessions in the UK as often people do not act rationally at such as strained time.
Many relationships end bitterly and it is difficult to push for your financial rights at such a time which is why many cases end in court. If one partner is refusing to sell the property then a sale can be forced or the family courts can decide who is entitled to what in the absence of agreement.
Divorces are a tricky financial moment for many and speaking to experts at this time could save you even more heartache.
Mortgage brokers can deal with re-arranging your mortgage to suit your new needs and lenders can be receptive if you speak to them quickly.
