Getting divorced is never easy and if you’re separating from your partner, it’s likely that Valentine’s Day isn’t going to make you feel any better.
Another thing that you could be worrying about when you’re going through a divorce is what you’re going to do about your property if you share a mortgage together.
Don’t worry – you’ll still have rights to your property and it’s important that you speak to your lender to let them know what the situation is. Whether you’re hoping to stay in the house on your own or you’re looking to sell, we’ll take you through what you need to consider when a relationship ends.
Paying the mortgage
The end of a relationship can be a traumatic affair – but through all the problems it’s important to keep paying the mortgage. Getting behind can see you being hit with extra charges, you could ultimately lose the property, and it will damage your credit history – making it hard for both of you to borrow in the future. Remember that with a joint mortgage you are both liable in full for the amount of the mortgage.
Staying in the home
If the plan is for you to stay in the house and your ex-partner move out – or the other way around – there are a couple of options. One approach, at least in the short term, is for your ex to continue to pay their share of the mortgage to enable you to live in the property. If you are staying put with the children, for example, this could form part of the child maintenance agreement.
A more permanent solution is for you to buy your ex out so that you own the house on your own. In most cases this will mean remortgaging to transfer the ownership of the property into your name only, known as ‘Transfer of Equity’.
The first step is to speak to your lender – they’ll need to assess whether you’ll be able to keep up with the mortgage payments on your own. There’s no guarantee that they’ll agree to transfer the mortgage to your name as whenever anyone makes an application for a mortgage or a remortgage, lenders have to carry out strict affordability checks. If your lender thinks you won’t be able to cope with the payments on your own, they may turn you down for this.
However, if your mortgage lender carries out its affordability checks and is satisfied you’ll be able to cope with the mortgage payments alone, they might agree to transfer the ownership of the house to you.
To buy out your ex’s half of the house, you’ll need to get your property valued to work out how much equity is currently in the property. Depending on how your property has changed in value, it’s likely that you’ll have to take out a bigger mortgage to pay off your ex unless you’ve got enough saved up to afford their half of the house. Your lender will also need to assess whether you’ll be able to take on this larger mortgage on.
If your home has decreased in value since you bought it and you’re in negative equity, it’s probably unlikely that you’ll be able to take on your mortgage alone. This is because most lenders won’t accept you for a 100% loan-to-value mortgage.
You’ll then need to get your ex’s name removed from the mortgage and property. This will require the services of a solicitor, so make sure you factor the cost of this into the total amount you’ll have to pay for your remortgage.
Selling your house
Another option you’ll have is for both of you to move out of the property, sell it and pay off the mortgage. This would the easier option as it won’t require any transfer of ownership, so it’s a less technically difficult process.
However, if there’s any equity in your property, this will be classed as a ‘marital asset’ and will be divided between you as part of the divorce. How much each of you get can be difficult to decide and if you can’t come to an agreement between the two of you, it’s best to get your solicitors to work this out along with the rest of your assets.
When you’re getting divorced, it’s also a good idea to remove the financial link between the two of you. Your finances will be linked due to the mortgage you took out together (and most other joint financial products, like bank accounts) – lenders will be able to see anyone who you’re financially tied to when they look at your credit history. If you come to apply for any form of credit in the future, they may take your ex’s credit history into account when they’re making their decision about whether they’re going to accept you for borrowing or not.
Your ex may not have any problems with their credit history now but you should still think about breaking the financial link in case they have any problems with borrowing down the line.
To do this, you’ll need to get a financial disassociation. This tells the credit reference agency that the two of you are no longer linked and it means they won’t show up on your credit history anymore. You’ll have to make a separate request for disassociation for each of the three credit reference agencies – Experian, Equifax and Callcredit.
If you’re still paying your mortgage jointly, you won’t be able to get a financial disassociation until you’ve paid this off or transferred the ownership to one of you. However, if you’ve been living apart for six months but you’re still paying off the mortgage together, you’ll be able to get a financial disassociation after this time.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.