5 consequences of divorce on your property & mortgage

It’s a sad fact but the New Year sees many family law firms note a sharp rise in divorces. In, fact the first working Monday of the new year (9 January) is known as Divorce Day as they receive so many enquiries about getting a divorce.

The ONS figures show that over 40% of couples will divorce, and the average length of married life is a little over 11 years – meaning that many will at some point need to consider what to do with their home and their mortgage during its term.

There are of course a multitude of consequences to separating, with sorting finances and living arrangements amongst the most stressful.

Here expert Pete Mugleston from Online Mortgage Advisor gives his top five points to consider.

1) Think about your credit report

If you’re named on the mortgage, until you’re officially removed you’ll have a financial responsibility to ensure payments are made, regardless of what you agree with your ex-partner. If they’re paying, we recommend still calling the lender to check – if payments are missed they’ll register on your credit file too, and this significantly impacts your chances of approval by other lenders in future.

Mortgage arrears are considered as one of the most severe credit issues by lenders – some will flat decline your application if there are any arrears showing from the last 2-3 years on your file, and more than two recently can mean much higher rates, bigger fees, and will mean you need a much bigger deposit. For some borrowers it can be the difference between being able to move out and not, as being unable to refinance or get a new mortgage leaves them stuck in an unhappy relationship – don’t let this be you!

2) Getting approved for a new mortgage in your sole name is crucial

The amount you can borrow in your own name from one income will play a big part in any negotiations you have on a fair split. Staying in the property and buying out your ex? You’ll need to afford the mortgage on your own, as anyone named on the title deeds is required to be on the mortgage, and this includes any additional borrowing you’ll need to buy them out.
Can’t afford the full amount? You’ll either need to find someone to join you (a relative, usually) who can afford it, or you’ll have to sell.

Approval will be subject to meeting all the usual criteria in terms of equity, affordability, and credit history. If you or your ex struggle to get approved even with specialist lenders the only option is to stay on the mortgage in joint names, or sell.

3) Complications with staying on the mortgage

If you decide to stay on the mortgage but move out anyway, the existing mortgage will impact your affordability and eligibility criteria on any mortgage for a new property that you might want to take out, and you may well have to stump up for the additional ‘second-property’ stamp duty on your new home.

4) Selling and buying elsewhere

If you decide to sell the property, then of course the more amicable you can be the better – this often allows you more time to market and take offers on the property. If potential buyers know you hate each other and are in a rush to sell, the price drops.

Also don’t forget to consider porting the mortgage – if buying a new place, one of you can move your current deal to the next property – something many divorcees overlook, and something that can keep you on that great rate or avoid expensive early repayment charges.

5) Be sure you actually want to split up!

We’ve seen it before, a couple can’t stand each other, find new places to live, markets the property, and packs everything in boxes only to reconcile before completion or worse, afterwards, when costs/time/effort are all in vain.