Divorce is undoubtedly one of the most emotionally challenging and stressful experiences a person can go through. Add into the mix the practical demands of everyday life, like your children or mortgage, and getting a divorce quickly becomes heavy, emotional turmoil. While everyone’s circumstances are different and divorce Is rarely something that is planned, it is still a very common occurrence.
Divorce usually results in the redistribution of assets and income and as is often the case, the former, marital home is sold, and both partners seek somewhere else to live. It is vital that both parties in a divorce seek independent financial advice, and fully explore all the options open to them.
Despite its commonality, many people don’t know what happens to their mortgage after a divorce which is why we have put together this article, to help those in need of advice.
How Does Divorce Affect Mortgages?
Getting divorced with an outstanding joint mortgage is not an easy process, but it is possible, and it is very common: something that happens every day. In fact, there were over 30,154 divorce petitions made from January to March 2022 in the UK.
If both of your names are on the mortgage deeds, then you are both responsible for the repayment of the mortgage debt. Even if one of you has moved out of the marital home, you have both agreed to be equally liable for the debt until the mortgage is paid off, not just while you live in the property. If payments are missed it will go against your credit score and possibly affect applying for a mortgage in the future, you should also be wary of your partner paying more or less than you do, as this could be held against you in a future financial dispute.
What Happens to Your Mortgage After a Divorce?
The first step to take with your mortgage during a divorce is to let your mortgage lender as soon as possible, especially if you think you could struggle to make repayments. You may find that mortgage lenders are sympathetic to those going through a divorce and could offer you a payment holiday, which could be a welcome space to breathe, however, it is important to remember that the original mortgage agreement will still be in place. It may also be possible for you to have your name removed from the mortgage if you speak to your solicitor, but it's important to make sure that this won't result in you losing out on your share of the property.
How the home should be divided can be a difficult topic in divorce proceedings. Generally, the following options are open to you:
Selling Up.Selling the home and using the proceeds to pay off the mortgage allows both parties to walk away with their share of the equity, however, this is a much easier solution if you and your spouse are on good terms. If not, deciding who gets what from the leftover funds of selling can be an open dispute, and often if an agreement cannot be reached, the matter will need to be settled in court and legal advice secured about your rights. It’s also important to consider the state of the current housing market as selling a house can take time, and market conditions may impact the selling price.
Transferring OwnershipThis option is usually chosen when one person wants to stay in the family home, to do this a transfer of ownership of the property into one person's name, will need to happen. Your mortgage lender must agree to this before proceeding and if agreed, a licensed conveyancer would need to help complete the transfer of equity, whilst the new sole owner of the property would need to prove they can keep up with repayments. It is also possible to enter a scenario known as Joint Borrower Sole Proprietor, where the lender allows 2 people on the mortgage but only one named on the title deeds, which is a good affordability solution but one that shouldn’t be entered into lightly, as one will person will be liable for the mortgage payments but not have any ownership rights to the property.
Buy-OutIf one person intends to live in the property after a divorce, and an agreement can be reached amicably, then buying your partner out could be a good option for you. There are various options available in this situation:
- Remortgage in your name only - by speaking to your lender and showing evidence that you can solely afford monthly repayments based on your income, once the remortgage is completed, the person exiting the property will receive their share and name removed from the title deeds.
- Seek a Guarantor Mortgage – this is available when you can’t meet your current mortgage repayment alone.
- Reach an Amicable Settlement
Remortgaging in the case of divorce or separation
A lot of people don’t realise that remortgaging is an option in the case of divorce or separation. Many people think that the only option is to sell their home, however, depending on your ability to afford the mortgage on your own, remortgaging may be an option. Remortgaging allows you to raise money to buy out your ex-partner, and most mortgage lenders do permit this.
It’s important that you consider the costs involved in repaying the existing mortgage, and the costs of the new mortgage. Your mortgage broker will be able to advise whether this is an option for you.
Getting divorced? How your mortgage broker can help
At TaylorMade, we’re there to help our clients whatever their situation. If you’re currently going through a separation or divorce and need some advice on your mortgage, we can help. We will talk through the options available to you and support you each step of the way.
