Mortgages and Divorce: What You Need to Know
One of the biggest concerns for many people going through divorce, separation or dissolution is the family home and what happens to the mortgage. Whether you plan to keep the house, buy a new property, or split assets, understanding how mortgages are handled during divorce is essential.
In this blog, we’ll discuss how maintenance payments can affect your mortgage eligibility, why speaking to a mortgage broker is crucial, and your options for your home and mortgage after a divorce.
1. What Happens to the Mortgage During a Divorce?
Typically, there are three main options:
One Spouse Buys Out the Other: One party may wish to remain in the family home and buy out the other’s share. This requires that the person staying in the home can afford to take over the mortgage on their own.
Sell the Property: In many cases, selling the home and splitting the proceeds is the most straightforward option, especially if neither spouse can afford the mortgage alone.
Transfer of Ownership: In some cases, one spouse may transfer their property ownership to the other, who continues to live in the home. However, this can be complex if both parties are named on the mortgage, and the lender may need to approve any changes to the agreement.
2. Maintenance Payments as Income: Can They Help You Get a Mortgage?
If you receive spousal maintenance or child maintenance payments after the divorce, these payments can sometimes be used as income when applying for a new mortgage. Lenders have varying rules on this, so it’s important to understand how these payments may affect your borrowing capacity.
Key things to know:
Not All Lenders Accept Maintenance Payments: Some lenders may be willing to count maintenance payments as part of your income, while others may not. The length of time you’ve been receiving the payments and how secure they are can also be factors.
Proof of Payments: To include maintenance payments as part of your income, you will typically need to show evidence of regular payments over a set period, often at least six months. You may also need a court order or legal agreement confirming the arrangement.
Impact on Borrowing: If your lender accepts maintenance payments as income, it can increase the amount you’re eligible to borrow, which may be crucial if you’re planning to buy a new home or take over the mortgage on your existing property.
3. The Importance of Speaking to a Mortgage Broker
Navigating mortgages after a divorce can be complicated, especially when understanding what your new financial situation will allow. A mortgage broker can make a significant difference.
Here are some advantages of working with a mortgage broker:
Access to a Wider Range of Lenders: Mortgage brokers have access to a wide range of lenders, including some that may not be available directly to the public. This can be especially important if your financial circumstances have changed and you’re looking for more flexible lending criteria.
Expert Advice: A broker can assess your current situation, including any maintenance payments, your new income, and any outstanding debts, to help you find the right mortgage deal for your needs.
Navigating the Application Process: Divorce often complicates financial matters, and applying for a mortgage while juggling maintenance payments, legal settlements, or changes in income can be stressful. A broker can help guide you through the application process and deal with lenders on your behalf.
4. Affordability After Divorce: Can You Take Over the Mortgage?
If one spouse wants to stay in the family home and take over the mortgage, the first step is determining whether it’s financially feasible. You will need to prove to the lender that you can afford the mortgage on your own based on your new income and circumstances.
Things to consider:
Lender’s Affordability Criteria: Lenders will look closely at your income, outgoings, and debts to assess whether you can afford to take over the mortgage. If your financial circumstances have changed significantly due to the divorce, the lender’s decision could be affected.
Remortgaging: If your current mortgage deal isn’t suitable for your new situation, you may consider remortgaging to a different deal, potentially with lower monthly payments or a longer term to make it more affordable.
5. Getting a New Mortgage After Divorce
If you plan to buy a new home after the divorce, you’ll need to secure a new mortgage based on your latest financial circumstances. Divorce can change your financial situation, mainly if you rely on a single income or receive maintenance payments, so you will need to assess what you can afford carefully.
Steps to take:
Review Your Finances: Take a close look at your new income, maintenance payments, and outgoings to determine what kind of mortgage you can afford. This may be different from what you could afford as part of a couple.
Check Your Credit Rating: Your credit score will play a key role in determining what kind of mortgage deal you can get. Ensure you’ve checked your credit rating and addressed any issues before applying for a mortgage.
Work with a Broker: Again, a mortgage broker can be invaluable in helping you navigate this process. They can help you find lenders more likely to accept your new financial situation and guide you towards the best mortgage deals.
Conclusion: Don’t Navigate Mortgages Alone
Divorce is a significant life change that affects every aspect of your finances, especially when it comes to your home and mortgage. Whether you’re planning to buy a new property, take over the family home, or sell the house and split the proceeds, seeking professional advice is key to making informed decisions.
A mortgage broker can help you navigate the complexities of mortgage applications, especially if your income has changed or you’re receiving maintenance payments. They can find lenders who are more flexible and help you secure the best possible deal for your circumstances.
If you’re going through a divorce and need help with your mortgage options, reach out using these details:
Jamie Lowe- Financial Adviser and Director of True Self Wealth Ltd
Get in touch: 07469 712299 Jamie.Lowe@SJPP.co.uk
To find out more, visit www.truselfwealth.co.uk
To book an appointment, visit www.calendly.com/jamie-lowe-tsw
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Your home may be repossessed if you do not keep up repayments on your mortgage.
We offer a comprehensive range of first charge mortgages from across the market that are made available to mortgage intermediaries for which we are paid a procuration fee by the lender.
True Self Wealth Ltd is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website http://www.sjp.co.uk/products
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