Dear Delia My client has recently divorced and needs to raise 40% of the equity of the marital home valued at 190,000 to buy out her husband. Her main job provides an income of 11.800 and she has a supplementary income of 2.600. She gets 3,600 a year in maintenance and tax credits of £7200 a year. The outstanding mortgage is 50,894 on an SVR of 6.5%. She wants to keep payments at the same level but will accept a longer term. She needs 110,137. What are her options?
Delia says: There are products designed for the divorcee market although other solutions are available. John Rattigan of Cartel and David Holmes of the Yorkshire are here to help.
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John Rattigan is director of compliance at Cartel
The question does not state whether the client has any adverse credit so I will assume she does not. I feel some advisers may be tempted to look at a case like this and immediately bypass mainstream lenders, opting for self-cert products with non-conforming lenders.
But due to divorce rates rising for the third consecutive year, more lenders are now willing to take into account maintenance payments, working tax credits and secondary incomes.
According to statistics from the Debts and Divorce campaign, almost half this country’s divorcees find divorce causes more financial stress and problems than the loss of a job or a bereavement.
I would begin by producing a comprehensive budget planner to assess an affordable budget for the client. Affordability permitting, I would obtain a decision in principle through Alliance and Leicester. A&L would be willing to accept the maintenance payments received by the client and, provided these payments are substantiated by bank statements, a court order is not necessary.
A&L would also use 100% of the client’s secondary income and working tax credits in its income calculation. It uses a borrowing matrix to calculate the final income multiple on a case by case basis.
The maximum – based on the applicant’s income being in excess of £20,000, the LTV ratio being less than 75% and a high credit score being attained – is 4.25 x income and, if suited to the client’s needs and demands, this multiple could be increased a further 0.5 by opting for a five-year fixed rate, currently 4.54% with no extended early repayment charges.
The LTV ratio is less than 75%, the client’s usable income is, in total, above £20,000 and, as mentioned previously, I have assumed the client has a clean credit history.
The arrangement fee can also be added to the loan, which in this client’s circumstances may be the most suitable option.
The client’s existing monthly payment or remaining term is not mentioned but I suggest she opts for a new term of 25 years in order to keep her repayments to a minimum but not to take her mortgage commitment into retirement.
Cases such as this are on the increase and should be considered on their individual merits. Mainstream lenders should not be overlooked as, with equal measures of expert knowledge, lateral thinking and determination, advisers are often able to secure the best deal for their vulnerable clients on prime lending deals and criteria.
David Holmes is corporate affairs manager at the Yorkshire
This client presents a problem as she needs to more than double her mortgage while maintaining payments at around their current level. We would first need to clarify the maintenance agreement and the supplementary income. Maintenance payments can be included if confirmation is obtained through a court order, the CSA or via a solicitor’s letter. As the client receives their maintenance via a private agreement, this must be confirmed by her solicitor.
As far as her supplementary income is concerned some confirmation of its source and regularity will be needed. Assuming the maintenance payments are confirmed we would gross up at basic rate tax and the maximum loan would be £103,300. Depending on the nature of the supplementary income we may then be able to increase the total loan to the £110,137 needed.
The first suggestion would be to use our Fresh Start mortgage. This repayment product allows borrowing up to 95% and is aimed at people in precisely this situation. There is a £395 fee debited on completion. The first six months’ borrowing is interest free. Based on the loan size of £110,137 and a new term of 25 years, the first six months’ payments would be £367.17. The product then moves on to a fixed rate of 5.09% until December 31, 2010 at a payment of £642.44 for months seven to 60 with the capital outstanding being £107,934. A further version is available with a £400 cashback at 5.49% for those who need to borrow 100%LTV.
The other option is to consider a straight two-year fix at 4.34% but even then the monthly payment would be £601.64 plus £495 in fees.
As well as financial assistance, Fresh Start comes with access to help and advice. The service can provide contact details for a family law practitioner belonging to the specialist lawyers’ association, Resolution. And access is given to a professional advice service provided by a firm of counsellors. Specialist literature, a website and a telephone helpline are available through which advice and information on a range of topics from dealing with emotions to practical advice on relocation can be accessed. The service also offers three face-to-face sessions about relationship breakdown with a counsellor.
Finally, the Yorkshire offers a free guide to separating family finances when a relationship ends. This covers such things as finding a solicitor, using a mediator, splitting assets and debts, taxation, state benefits and making a will.