Delia says: There is a lot of fact-finding needed on this case but we have Paul Chafer of Stroud & Swindon and Brian Murphy at the Mortgage Advice Bureau to sift through the details.
Intermediary response Brian Murphy is head of lending at Mortgage Advice Bureau
The client scenario given here does not provide a huge amount of information so you will need to take the advice given below as a general guide and adjust it to her individual circumstances. The question implies that the client may not be in a position to take over this mortgage supported by her income alone.
Therefore the first thing we need to do is ascertain a realistic monthly budget that she can comfortably afford. But if we assume that she was contributing to the mortgage previously and that she is now to take on both the original borrowing and her former partner’s share of the equity, this may not be achievable due to her salary limitations.
We also do not know what the client’s family arrangements consist of – if there are any children and if the client is in receipt of any sort of maintenance payments from her former partner. If there is a maintenance arrangement in place this could be included with her salary in assessing her overall income for mortgage purposes.
The Yorkshire offers a scheme called Fresh Start aimed at clients who have divorced or separated and this has the benefit of incurring no interest payments in the six months following completion to allow the client time to find their financial feet.
It is worth noting that the six-month nil charge interest rate period does not result in a roll-up of interest but the pay rate after the initial six months is not the keenest rate in the market.
The Fresh Start product also allows borrowing of up to 100% LTV and this may be important depending on what degree of equity is available in the property to buy out her former partner.
The deal also provides a ‘help with costs’ package of 500 which will make a contribution to the legal fees. It carries a product fee of 595 payable at completion.
The Yorkshire can offer a fixed rate of 6.29% until April 30 2012 that would protect this client from any further upward movements in the interest rate market. This feature may be particularly appealing considering her salary limitation and the impact this might have on her ability to absorb any interest rate rises that affect her monthly mortgage repayments.
The Yorkshire generally applies income multiples of between 3.25 x and 3.75 x. Again, bearing in mind the client’s comments on her income this may not allow sufficient levels of borrowing needed to take on the existing borrowing plus buy out her partner’s equity share.
Paul Chafer is sales director of Stroud & Swindon
One of the most stressful aspects of any divorce can be separating the finances, especially if the couple has been together for a long period. I haven’t been provided with many details in this case study, so forgive me if I cover ground you might already have considered.
First, your client needs to make sure that her ex-partner is happy selling his share of the home to her. If he is content to do this you will also need to find out what percentage of the equity he is entitled to and when he expects it back. I recommend that your client speaks to a lawyer and settles these questions as soon as possible.
Your client indicates that she doesn’t earn a substantial salary so we need to look at ways to increase her borrowing potential without crippling her financially. Was she married to her partner and if so, is she receiving maintenance? Certain mortgages will take this income into account and this allows her to borrow more.
Also, how much equity does she have in the property? If they have been together for 10 years I imagine that her share of the equity will provide her with a substantial deposit which will ease the financial burden and make it easier for her to refinance the property.
It is also mentioned that she has an additional bedroom. Is this in use by a child or as an office? If not, would she be happy renting it out? I’m sure that the breakdown of her relationship has left her a little shaken but if she is emotionally strong enough – and perhaps even interested in the companionship – I suggest she follows this course of action. It would provide her with an additional income and may help her to buy her home.
At Stroud & Swindon, we offer buy-to-share financing which takes into account 4,250 of the rental income when calculating income multiples on purchase as well as remortgages. It is worth sitting down and doing the maths regarding your client’s situation. Other societies also offer innovative products which might be appropriate so I suggest you speak to some smaller lenders.
Finally, depending on the circumstances you may be forced to tell your client that downsizing is the only option for her. While this might not be what she wants, if hanging on to her house is going to cause her significant financial difficulties and potentially affect her quality of life for a significant period of time, you need to make her aware of the implications.
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