It’s obvious that getting divorced can be a stressful time, but what to do with the existing marital property and the outstanding mortgage can be an added complication, especially if it is the family home and children are involved. So what are the choices?
Firstly, before any decisions are reached, it is very important that independent mortgage advice is taken. That way you can ensure that all potential avenues are explored as it can be a complex area. The options generally available are as follows;
Option 1 - One party retains the property
This involves one partner buying out the other person’s share. To do this, you will need to be able to satisfy a lender’s affordability calculator to prove that you can afford it in your own right - both the existing mortgage and any new borrowing to buy out the other party. This also frees up the other partner to buy a new property in their own right (with the same assumptions regarding affordability as above).
Option 2 - Sell the property
This is sometimes the best option as both parties start afresh. If children are involved it may however cause further disruption.
Option 3 - One partner remains in the property and another pays the mortgage
This option would usually be agreed as part of the divorce settlement. For the partner agreeing to continue paying the costs, they should be aware the impact that this may have on their ability to borrow again to purchase a new property for themselves.
Option 4 - Continue with no change
There are some occasions, for example, children shortly leaving home or not long remaining on a fixed rate before redemption penalties expire, where it may make sense to keep the status quo for a period of time. This may only work in an amicable situation!
Whatever the decision, always remember that, assuming the original mortgage was in joint names, then both parties are liable for the mortgage payments. Non-payment can result in an impact on your credit file – you are not excused from the commitment even if you have moved out and no longer live there.
As always lenders have differing policies on how much they will lend divorcing couples, so don’t despair if your Bank or Building Society says no, there could be a solution elsewhere in the market
Paul Hardingham and Tony Ibson are Mortgage and Protection Advisers at Innovate Mortgages and Loans. Both have over 20 years of experience advising individuals and businesses across the North East of England. They can be contacted for bespoke advice at firstname.lastname@example.org or email@example.com or call 0191 223 3514.
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