Divorcing can be stressful enough without having to worry about an outstanding mortgage. There is no doubt that ex-partners, knowing the impact missed payments can have, sometimes use the weapon of a mortgage in the divorce war.
Despite lenders being sympathetic to the situation, even one late or missed payment can have an enormous effect on the credit score of a party, given credit scoring by the major banks and building societies is now largely automated and computerised.
In 2013 greater numbers are splitting from their spouses or partners – and if recent figures are to be believed, it seems that almost half of all marriages now end in divorce. What is then to be done with the family house, is often fraught with both financial and emotional difficulty.
The matrimonial home can represent far more than a marital asset. It is usually a safe haven, a settled place for the children and one of few sources and anchors providing a semblance of stability.
The Divorce Process
If you are going through a divorce and have moved out of the family home you may wonder if you need to keep paying the mortgage. In the event that either party threatens to hold back on mortgage payments, it is worth speaking to your solicitor to send a stern reminder to the other side that a joint mortgage is a’ joint and several’ liability. It is not a commitment of choice but a contractual liability.
Adverse credit data will affect both parties and will usually result in higher mortgage costs for a substantial period later, as only specialised lenders will usually entertain any future finance application.
In the event of difficulty, always contact your lender directly and have this backed up by appropriate legal correspondence.
In the current climate, lenders can be far more sympathetic if they are aware of the situation in advance, as opposed to speaking to them only once payments have been missed. Remember 50% of the lender staff may have experienced similar difficulty!
There are a number of options for a couple divorcing, who share an on-going mortgage. These can be summarised as follows:
1. Seek Advice on Buying the Other Party Out
If one of you wants to live in the home, it is always helpful if agreement can be reached to transfer ownership. This may involve one party, capital raising to buy the share of the other and then transferring ownership.
This will however, only be possible, if the mortgage needed, remains affordable in that party’s name and this will depend on individual circumstances. It is often useful to speak to a mortgage broker with experience in this area.
2. Attempt Agreement That the Property is Transferred into One Party’s Sole Name
Often, even when agreed, a major difficulty can be persuading the mortgage lender to release the other party from the mortgage and the obligations and liabilities under the mortgage contract.
A mortgage lender is better served to have two people on a mortgage, who they can chase for payment, rather than just one- on sheer numbers alone, it doubles the chance of payment.
A mortgage lender is under no obligation to remove a party from a mortgage and they will have to assess and be satisfied that any remaining loan remains affordable for the person who seeks to remain liable.
In the event that you are able to satisfy the lender that you can afford the mortgage either alone or even with another person such as a guarantor, there is a good chance they will be sympathetic.
3. Sell and Move
This option can be the most destabilising but can often provide the cleanest of breaks.
There is a severance of symbiotic reliance and both parties can go their own way. However, often a joint mortgage has afforded the couple a bigger property and often a larger mortgage capacity, so this may ultimately involve a significant downsize or move out of area, when going separate ways.
Whichever option you are considering, you should seek good legal advice and from a specialist family law solicitor. There are also a number of charities who can point you in the right direction
Whilst the financial aspects of divorce are naturally fraught with financial and emotional difficulty, the children will hopefully remain the primary concern.