With divorce rates creeping up as a result of the lockdown, Miles Robinson of online broker Trussle offers advice on your mortgage options if you are separating from your spouse or partner
It seems this year more than ever, searches for divorce guidance are soaring, with Citizens Advice reporting a 25% increase in views of its divorce guidance webpage, when comparing the first weekend in September with the same period last year.
Additionally, experts warn of an incoming ‘post-lockdown divorce boom.’
That’s why it’s more important than ever before to ensure our customers know the options available to them when navigating the closure of a joint mortgage.
If you and your partner have a joint mortgage and decide to separate, there are a few options available to you.
Firstly, your joint mortgage won’t change until you or your partner take action and a formal agreement is in place.
Until this time, you must continue to pay your mortgage, even if you’ve moved out of the home.
When two people take out a joint mortgage, both agree to be equally liable for the mortgage debt until it’s paid off. If you’re struggling financially due to the Covid-19 pandemic, contact your lender to see if you’re eligible for a mortgage payment holiday. Some banks may also offer a payment holiday to ease the financial strain of a divorce.
What are your options?
When going through a separation, there are a few avenues to consider:
Keep the home and transfer sole ownership to the occupier
If you come to an agreement that you would like to continue living in the home, you’ll need to buy your partner out, purchasing their share of the property, or vice versa.
To do this, you’ll need to contact your lender or mortgage broker to assess your affordability as a single homeowner and ensure you can get a mortgage.
It’s important to note that your lender is under no obligation to transfer the mortgage to one name and you may be required to go through affordability and credit score checks.
You’ll then need to buy your partner out. This will depend on what you and your partner agree through yourselves or solicitors, and usually involves a valuation of the property to determine the level of equity held in the home.
Generally, the amount will depend on the property’s value and how much equity you each put into the property upfront.
For example, if you decide to split the property between you, you would have to calculate how much you have paid off together and divide in two. You would then give your partner this amount, plus what they put down as a deposit.
Many people worry they won’t have the funds to do this. It’s worth using a mortgage calculator to work out what you can afford based on your income, existing equity and deposit, if applicable.
If you commit to further borrowing to buy out your partner, you’ll be required to show that you can afford the additional borrowing, on top of your estimated mortgage repayments.
Sell the property
Selling your property is one of the easiest ways of closing your joint mortgage and coming to a fair agreement.
The final sum received by both parties upon sale can differ based on personal circumstances. For example, if one partner has more equity than another or a legal agreement (e.g. Joint Tenancy or Tenants in Common) was made at the time of purchasing.
It’s worth noting that if you owe more money than the value of your home, you may have to split the debt between you.
Keep a share in the property
If you decide to keep your home when you separate, you or your ex-partner can keep or increase their share in the property. This is often the route taken when children are involved, whereby one parent or guardian stays in the home with the children until they reach the age of 18.
This will enable you to continue part owning and living in your home. If you later sell it, your partner will of course receive a percentage of the property’s value based on their equity.
Pay off the mortgage in full
Depending on the amount left on your mortgage and your financial situation, you may decide to pay it off in full, so you own 100% of the property.
You could then divide the money when you sell the home, based on your equity stakes and any legal agreements made at the time of purchase.
If you decide to choose this route and pay off your mortgage early, it’s important you check your terms and conditions or speak to your lender to see if you will incur an Early Repayment Charge (ERC). You can then use an overpayment calculator to calculate any additional costs.
If in doubt… speak to your lender
Going through a separation or a divorce is a complicated time for anyone, and finances are often at the centre. However, there are ways to ensure the process runs as smoothly as possible.
Everyone’s circumstances are different and if you’re unsure of your options, we’d encourage you to contact your current lender, preferred mortgage broker or solicitor who will be able to support you.
There are also charities such as Family Lives to make the separation less stressful for all parties.
Miles Robinson is head of mortgages at online mortgage broker, Trussle
