As house prices rise, more and more people are teaming up in order to get the mortgage that they need. By combining two incomes, borrowers can satisfy tough affordability assessments and get onto the housing ladder.
But what happens when the relationship breaks down? A leading mortgage expert is warning that your credit history could be at risk if problems develop between two parties on a joint mortgage. There are also issues about getting your name off the mortgage, buying out your partner and paying the mortgage after separation. Keep reading for everything you need to know.
What happens to a joint mortgage when you divorce?
Figures from Financial Reporter show that around a quarter of the 338,900 first-time buyers approved for mortgages in 2016 relied on dual incomes. More than 80,000 mortgages were approved based on buyers combining their earnings.
Now, a leading mortgage broker is warning borrowers that both parties on a joint mortgage could suffer if the relationship breaks down in the future. This is because when you enter into a joint mortgage agreement, both parties are 'joint and severally liable'. If one party stops paying their share of the mortgage, the lender will still demand the full monthly amount from the other party and any missed or late payments will show on both credit reports.
Mortgage expert Matthew Pennell says: “For those in a stable relationship, a joint mortgage is a great way of navigating the current tricky marketplace, but it isn’t without its own complications and should not be entered into lightly."
Paying the mortgage after separation
As both you and your ex-partner are ‘joint and severally liable’ for the mortgage, both of you remain responsible for paying the mortgage after you separate.
It doesn’t matter who was previously paying the mortgage or how the loan has been managed to date. As far as the lender is concerned they can chase both of you for payments.
What if you can’t afford the mortgage on your own?
When you separate, you are both separately liable for the home loan, meaning you can't simply claim that you are paying your 'part' of the mortgage. As far as the lender is concerned, they want to receive the full payment every month.
If the other party doesn't pay their share of the mortgage, you could end up having to pay the full amount in order to avoid damaging your credit rating.
If the mortgage isn’t paid, your lender can chase you for arrears. Mortgage providers do not have to find your ex-partner and they ignore issues surrounding income and which of you was contributing more to the loan.
You remain legally liable for arrears even if the property is sold or repossessed, and your debt will continue beyond a divorce even if you start a new relationship.
If you’re struggling to pay the mortgage you should speak to your lender straight away. Most lenders will deal sympathetically towards couples separating and they may be able to offer temporary solutions – perhaps a payment holiday – to help you. Bear in mind that the mortgage agreement will still be in place, and so you will eventually have to find a long-term solution.
Right to property after separation
If you separate having been married, you are automatically entitled to a share of your partner’s assets. This means that you have a legal right over your home, even if you are not the legal owner.
When you separate, you have a number of choices:
· Sell the property and both of you move out. You can use any money raised to put towards buying another home.
· One of you can buy the other one out.
· Keep the property and not change who owns it. One of you could continue to live in it, perhaps until your children leave school.
· Transfer part of the value from one partner to another. The partner who gives up their share of ownership retains an interest in the property meaning when it is sold they receive a percentage of its value.
If you have children, the person considered the primary care-giver will normally be allowed to keep your family home.
If you take out a joint mortgage you could also face problems when you come to sell the property. “In the event of selling a house when a joint mortgage is in place, ordinarily the profits will be split equally. Obviously, this can seem very unfair if one person has upped and left and not contributed to repayments," says Mr Pennell.
"Sadly, in those circumstances, you may have to employ legal assistance to level the playing field. Not only is this time consuming and expensive, there’s no guarantee the courts will settle in your favour.”
What if separating and not married?
If you live together but you’re not married, you could face problems if you separate. This is because no matter how long you have lived together, if you’re not married you have no automatic legal right over your partner’s assets.
This is becoming more and more common as people move into properties their partner already owns, or can’t afford to contribute when their new partner buys a house.
For example, if you move into a property your partner owns, and you split up a few years later, you won’t have a right to claim a share of the property. This could leave you with nowhere to live.
If you find yourself in this position you can argue that you have an interest in the property, because although it belongs to your ex-partner, you’ve contributed financially over the years. You may have contributed towards the mortgage payments and the upkeep of the property.
However, according to Co-op Legal Services, ‘this can be difficult to prove, and it can also be very costly to pursue this argument in Court.’
Getting names off mortgage
Moving your joint mortgage into just one name can allow you to keep your home while also ensuring you make a financial break with your ex.
You should speak to your lender about whether they will consider allowing you to do this. You will have to prove that you can afford the mortgage on your own, particularly if you need to borrow extra money to buy your ex-partner’s share.
A party cannot be removed from a mortgage without their permission. The party coming off the mortgage will have to agree to this, and sign documents to confirm.