Mortgage Capacity Assessment – Helping to Negotiate the right divorce Settlement.
Recently a friend of mine who is currently going through a divorce came to me with a problem.
She had done everything right so far; she had sought advice from a reputable Family Solicitor and agreed that the most amicable course of action would be to attend mediation meetings.
Access and maintenance payments for the children were dealt with quickly and her husband agreed that, assuming she could take over their mortgage by herself, she could keep the house in return for him retaining his pension and savings. With negotiations proceeding so smoothly all appeared to have gone in her favour…..or so she thought.
As we all know once a divorce settlement has been finalised it cannot be re-written, therefore, getting it right is imperative. Emphasis should be made on ensuring you have the correct information from the outset to allow you to make the right decisions, save time and money.
What my friend had failed to find out is whether she could actually raise a mortgage herself?
The last visit she made to her now ex-Mortgage Advisor was nearly 5 years ago and at that time her husband had just started his own business and could not prove any income.
The Mortgage Advisor confirmed that with her salary and the Child Benefit they receive for their 3 children they still qualified for a mortgage. With this in mind my friend confidently agreed to the terms of the divorce settlement assuming she would be able to take over the mortgage on the marital home.
After a visit to her bank my friend discovered, to her surprise, that the Mortgage Advisor no longer worked at the bank. In fact the bank no longer provided mortgages. This is when she came to me to explain what had happened and wanting to know where she should go from here?
I mentioned that she would benefit from having a Mortgage Capacity Assessment carried out.
This is where a Mortgage Capacity Expert would, after considering her Form E and any other relevant financial information, be able to confirm her likely maximum mortgage borrowing and more importantly the amount of mortgage she could actually afford to maintain. After making relevant enquiries she received her Mortgage Capacity Report a few days later which confirmed a number of things:
Lenders would no longer consider the Child Benefit she receives. This is because her children are nearing an age when these benefits will stop; her children are now aged 14, 16 and 17.
- Her Credit Card bill had crept up to nearly £6,000.00, further reducing her borrowing.
- As soon as she had agreed not to take any of her husband’s pension she increased her own contributions to her employer’s retirement scheme reducing her ‘take home’ pay.
- After a lengthy period of low interest rates and with increasing speculation that rates will rise in the near future mortgage lenders are now undergoing Stress Testing. This is where they assess a person’s ability to afford their mortgage based on higher interest rates. This all meant that her borrowing power had shrunk significantly and unfortunately my friend no longer qualified for the amount of mortgage she needed.
This has all led to a delay in the divorce being finalised and her husband still being party to their mortgage. Also, not only has her own chances of getting a mortgage been scuppered but her husband’s too.
The chance of buying himself a new home has not only been blighted by years of low self-employed income but in the eyes of mortgage lenders he is still responsible for another mortgage. So despite the efforts they made to keep their divorce amicable they are at loggerheads anyway.
However, all this could have been avoided had she obtained a Mortgage Capacity Report at the outset of her divorce.
- Her financial circumstances could have been assessed and she would have been made aware of her mortgage capacity before she agreed to anything.
- The Mortgage Capacity Expert could have considered a number of different financial scenarios so she would have been well informed on what her borrowing ability would be based on any number of outcomes from her settlement.
- She could also have been informed of up-to-date lending criteria and how much a new mortgage would cost.
Getting a realistic and reliable idea of capacity to mortgage from the outset is important for all parties involved in any divorce.
It may not only give you an idea of your own capacity to mortgage but also your ex-partner and could help to create a more harmonious separation. With each party knowing their mortgage limits the assessment can help illustrate what is reasonable to expect from divorce.
Demanding everything except the kitchen sink might seem like a good course of action but if all it achieves is a lengthy battle at court and a costly solicitor’s bill finding out this information from the outset could save a lot of money and a great deal of heartache.