A couple who wish to separate or divorce face more than issues of the heart if they have a joint mortgage – there will be payment issues too, with both lenders and brokers involved in the process.
The core options a couple must consider when breaking up are whether to sell the property; buy out the ex-partner; retain a stake in the property; pay off the mortgage; or find a guarantor.
The separating couple will have to reach an agreement on how to proceed, which can be difficult while in the divorce process, and for a mortgage broker, there is a lot to do.
Pepper Money managing director James Blower says: “There are a number of considerations for brokers working with clients who are going through a divorce or separation.
“As a first step, it’s important for the clients to contact their lender if they have a change in their circumstances, especially if they think they may struggle to meet their mortgage repayments.
“Most lenders are sympathetic to customers in this situation and may be able to work with them on a strategy that provides some breathing space during the difficult period whilst a longer-term solution is reached.
Imla executive director Kate Davies says: “Separating/divorcing couples have to reach agreement on who pays/gets what and that may often mean selling the home.
Davies also flags the risks inherit in an acrimonious scenario: “So far as lenders are concerned joint borrowers are jointly and severally liable so if a couple separate, even if one party moves away and refuses to make any further payments, the remaining partner remains liable for the whole of the mortgage repayment, which can be crippling.”
The payments on the property still has to be paid regardless of the situation, although some lenders will provide affordability options for borrowers who have experienced recent credit problems, if there is a legitimate reason such as divorce, according to Blower.
He continues: “Longer-term options include selling the property, transferring the mortgage into one name and continuing to pay the existing mortgage.
“A broker should remind their clients that, when two people take out a joint mortgage, both are agreeing to be equally liable for the debt for the duration of the mortgage, not just while they live there, and it’s for this reason that divorce and separation a big cause of adverse credit.”
Davies adds: “If the remaining party stays in the property and goes into debt the lender will have no option but to repossess, in which case the possession order would be against both parties to the original mortgage.
“It is not possible for the remaining borrower simply to get the separated party’s name removed from the mortgage without his/her consent, which can also cause considerable difficulty.”
Lenders will often deal with each case according to the specific circumstances of its customers, which can relieve some of difficulties with the repayments.
JLM Mortgage Services director Rory Joseph says: “In the situation of a divorce we have to contact the existing lender to see what would be acceptable for them, for example, they may not let either of the names change on the mortgage.
“When we’re looking at the mortgage options we have to consider which ones will be comfortable with one of the parties not living in the actual mortgaged property.”
The approach in the circumstance of divorce is “old school”, collecting as much information as possible, including future plans in order to devise a strategy for both parties involved, according to Joseph.
Joseph concludes: “The final point to make is that this isn’t just about the mortgage, a formal separation changes the dynamic across all manner of financial products, protection and security.
“Advisers should really be ensuring that they look, for example, at the life insurance situation, protection set-up, and pensions. All are likely to need reviewing.”