How a divorce affects your mortgage
With almost four in ten marriages ending in divorce, the problem of what to do with a property bought on a joint mortgage is a fairly frequent one. However, there is not a wealth of information out there to guide property owners on what happens next.
Once the relationship has come to an end, there are two options. The obvious option is to sell the property, split the proceeds and go your separate ways.
However, if you have put a lot of time and energy into decorating and developing the home, this may be too much of a wrench.
So what is the process if one of you wants to buy out the other partner and keep the house?
Reapplying for that mortgage
The first issue surrounds the partner who wishes to remain in the property. Let's call her Lucy. Lucy will have to prove to the lender that she is capable of covering the mortgage payments on her own, without the help of her ex, Peter.
This is really important, because the lender is under no obligation to remove Peter from the mortgage deed unless Lucy can demonstrate to the lender that she can afford the repayments alone. The lender will assess Lucy as if she were a new applicant, and decide whether the mortgage is affordable on her income alone.
Unsurprisingly, this is where many cases fall down, as not all lenders will take into account things like maintenance payments when judging the applicant's affordability.
Even if Lucy can afford the current mortgage on her own, she may also need to request a larger loan in order to buy out Peter's equity in the property, if she does not have sufficient savings. Again, the lender can refuse to lend this sum, if it decides Lucy could not afford a larger mortgage.
Transfer of Equity
If the lender does agree, a 'transfer of equity' - alternatively known as a 'transfer of mortgage' - will need to take place. The good news is that your current mortgage deal can usually stay in place.
In order to buy out your partner's share of the property, you'll have to get a valuation. This may be done on a drive-by basis, rather than a physical survey, though there is a financial sting in the tail, as a full valuation fee will most likely be charged.
An alternative option is to simply remortgage, particularly if your mortgage is free of any early repayment charges, as the transfer can take place at the same time.
While you would still face the costs of the 'transfer of equity' - which is generally around £200 plus VAT - the survey and other remortgage fees would be free, as with other remortgages. Remortgaging is also likely to be quicker.
The final option is that of a guarantor mortgage, which would require you to find somebody - most likely a parent or sibling - to guarantee you will be able to meet your mortgage payments. Then, if you don't meet your payments, the lender could start proceedings against your guarantor to recover your debt from them.
Speak to your lender
As always when your financial circumstances change for the worse, it is vitally important to speak to your lender as soon as possible. They should be able to talk you through your options and advise on the next course of action.
Lenders are becoming more sympathetic to divorce cases, and may provide a temporary payment holiday while you sort through the situation.
It may also help your case if you have drawn up a full budget to demonstrate you can afford the extended mortgage repayments.
Yorkshire Building Society previously offered the Fresh Start mortgage range, aimed at divorcees, which recognised the fact that repayments may need to be minimal for a while after a break up. It offered a mortgage deal fixed at 0% for six months, rising to a fixed rate of 7.29% for five years thereafter.
However, this range was pulled last year, meaning that there are now no specialist mortgages designed for divorcees. Instead, you will need to speak to your individual lender to see if and how they can help.
If you'd like to get professional advice, speak to a mortgage broker. They should be able to guide you through the process of removing your partner from the mortgage. We have our own expert mortgage team here at Lovemoney who can help guide you through the process for your own circumstances (and best of all they won't charge you a penny!)