Are ‘Divorce Mortgages’ a Thing of the Future?
Divorce rates in the US and the UK were higher in 2013 than they were in 2003 for men and women over the age of 50. This is according to the Office for National Statistics, who have predicted that divorce rates will have risen again by 30% by the year 2020.
With these statistics becoming more of a reality as the years go by, lenders and service providers are beginning to capitalize by bringing a product called a ‘divorce mortgage’ to the market. This mortgage enables one party to stay in their marital home during the event of a divorce, which will eliminate any trauma that moving house may bring.
The premise behind this idea is that one person will be able to borrow enough money from a lending provider, in order to buy out their ex-partner's share of the property, in the event of a divorce. One of the biggest uncertainties that have arisen from this lending scheme is whether the lending criteria will be based on individual circumstance, or whether there will be a set term for the level of interest.
Staying or selling - what to do with the matrimonial home
The lending provider, Nationwide, around 30% of couples who divorce sell their matrimonial home and move out, as one party cannot afford to maintain the mortgage and any outgoing payments without the other. Mortgages are generally granted on the premise of two combined incomes, rather than one. Because of this, lending providers often require the person wishing to stay in their marital home to make a capital contribution, which will essentially increase the original deposit to approximately 25% of the property's original value.
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Lenders will take into account all of the different lifestyle factors for each client, for example, child maintenance, tax credits, any spousal maintenance that is required to be paid, and any benefits, in addition to the income they earn, in order to assess their mortgage capacity and the ability to afford the repayments.
Re-Mortgaging a property has become much more difficult for divorced couples over the past two years, as stricter affordability checks have been put into place. This does not necessarily mean that re-mortgaging is impossible, but rather that more divorcing couples are deciding to sell their homes as they do not qualify for the affordability check.
It’s important to remember the implications that divorces can have on children, which means that the divorcing parents will often want to maintain stability in times of uncertainty - moving house can often add to this, but some would argue that it offers a fresh start.
Divorce mortgages can be the perfect solution for a spouse who has a decent and stable income and can afford the mortgage repayments. On the other hand, for a spouse who has a more modest income and cannot afford the mortgage repayments, a divorce mortgage could, in fact, leave them in a more difficult situation that they started in.
The opinions of divorce mortgages remain divided, some believe that they can be of huge assistance, and an alternative solution to selling the family home, whereas others believe that it is better to divide assets and sell for a fresh beginning.
Alice Porter is an avid writer, who has been learning about divorce mortgages at Gorvins, a dispute resolution solicitors in Stockport.