In this instalment of Stowe guests, we are joined by James Harris of J P Mortgages
J P Mortgages is a whole of market independent mortgage brokers so clients can be confident that they will find the best the best mortgage deal available.
Today, James offers his expert advice on mortgage options when you are separating or getting a divorce
Divorce and separation can be a very stressful event. In the midst of all of this, you may ask: Where am I going to live?
Whilst things were going well, you may have bought a house with your partner and you may want to continue to live in that house – especially if you have children. But what do you do about your mortgage?
In an ideal world, you might keep your mortgage, or re-mortgage to get a better deal, whilst getting the house and the mortgage in your sole name. This is referred to as a Transfer of Equity – one person agrees to come off the property title, typically as part of a larger agreement, or in return for a sum of money. From then on, you would be the sole owner of your property. So, what’s stopping you?
Firstly, you’ll need to negotiate with the other party to the mortgage, possibly via your solicitor: Will they agree to come off the mortgage? How much money do they want for their share of the property? Will this affect any other agreements (i.e. maintenance payments). Speak to your solicitor about this before making an agreement. As part of these discussions you should determine how much you can borrow – after all, if no financial institution will lend you enough to take over the mortgage on one income, this will affect what you plan to do.
Once you have reached an agreement, you will need to get your mortgage sorted. This will take time, and there may be additional fees involved; taking someone’s name off a property requires a solicitor – and the solicitor representing you in your separation may not be able to act for you.
When applying for a mortgage, you may encounter some difficulties; the first of these is affordability. A joint mortgage underwritten on two incomes, may not pass the lender’s affordability test with just one income – even if you’re not asking for any more money, and even if you have been paying it on your own for some time.
The other big problem that some people have is credit scoring. Prior to separating, you may have had money worries, or built up big credit card balances, or perhaps you’ve kept your finances in good order whilst your partner has not. By taking a joint credit agreement (such as a mortgage) you’ve linked your credit files held by the Credit Reference Agencies, so even if you’ve kept your accounts in perfect order, if your credit file is linked to another file with a low score, this will drag your score down.
Credit scoring is a complex topic, but the key point is that it will take a long time to repair the damage done to your credit score – years perhaps. So if you’re re-mortgaging whilst separating, you will have to do so with your current credit file.
So how are you to solve these problems? Well, as a Mortgage Broker who has been giving mortgage advice for 7 years, I’d say: see a Mortgage Broker. If you’re not sure how to find one, or which is the right broker to use, talk to your solicitor – they will have had contact with Mortgage Brokers who have helped people in a similar situation to yourself and can recommend those who have helped their clients in the past.
There are over 300 mortgage lenders in the UK, and there is a huge difference in their rates, terms, and most importantly, their lending criteria: many lenders will not lend a mortgage that is more than 4.5 times your gross income (salary multiple), others may lend up to 6 times, or will use strict affordability instead of a salary multiple cap; many lenders have very low tolerance for missed credit card payments and defaults, others will lend to those with County Court Judgements, debt management plans, individual voluntary arrangements and even historic bankruptcies; some will use only the basic salary of the full-time permanently employed, others will lend to the self-employed, contractors, people on zero hour contracts and use overtime and bonuses to calculate if the mortgage is affordable. These are just some of the hundreds of things a lender will consider when they look at your application.
Every lender has a little box they like to fit their clients into – if you don’t fit into that box, they will not lend to you. An Independent Broker has access to lenders you’ve never heard of, a good broker can easily match you to a lender who is going to get you the mortgage you need, without you needing to spend days and weeks talking to every bank on the high street yourself.
In summary, sorting your finances out is just part of separating from your partner, and your mortgage is a big part of that. Obtaining a mortgage whilst going through a divorce can be complex and difficult, engaging the services of a professional as early as possible, can save you a lot of time, money and stress.
I’ve helped dozens of people in this situation during my career. Let’s look at the common thoughts of people in your situation.
Am I going to be on a very high rate?
That depends very much on your personal circumstances. A broker would first look at a high street lender to get you the best rates, if possible. However, if your financial circumstances are not ideal, he may need to look at other options. If, for example, your credit history is in poor shape, he may need to put you with a higher-rate lender for several years, before arranging a re-mortgage to another lender after your credit file has recovered. Many lenders only look back a set time (24 months, 48 months etc) for any missed payments, defaults or other issues. So, after paying a higher rate for a few years, there may be much better options available to you.
I’ll just keep my current mortgage – I don’t need to borrow extra money.
If this is possible, it may be the best solution. However, even if the lender is not lending you any extra money, from their point of view, this reduces the security of their loan – they’ll go from having 2 people with separate incomes they can chase for the monthly payment, to only having 1. If you can meet all their lending criteria, they’ll almost certainly agree, but if you can’t (and it may take a long time to get a definite answer), then they won’t agree to it.
I don’t want to pay a broker to find a mortgage – I’d rather do it myself.
I wish you the best of luck! I say that with utmost sincerity; I’ve been a mortgage broker for years, and I’m constantly learning and sometimes asking other brokers for ideas with complex cases. I regularly attend workshops run by the lender’s representatives to keep up to date on their constantly changing criteria.
Ultimately, it’s a matter of time and money; A broker might need only 2-3 hours of your time during the whole process, and you could have your new mortgage in place in a matter of weeks. To research lenders and personally handle the application on your own, could take hundreds of hours – if you’re spending 2 hours every day on it, you might still be working at it 6 months later.
We’ll just write up an agreement with my partner – I’ll pay the mortgage and stay in the house.
In some cases, this might be the only option available to you. I’d advise talking to your solicitor about the ramifications of this before you finalise any agreement. From a mortgage lenders point of view, these agreements don’t absolve the other person of the mortgage obligation, and credit reference agencies don’t record them.
Or to put it another way; if your partner was the one living in the house and paying the mortgage, and you were moving out but were still named on the mortgage, would you want to buy a new house?
If you do, your credit file still says you’re named on a mortgage; failing to disclose this during an application will almost certainly result in a lender refusing your application. Many lenders will refuse to consider your application for (from their point of view) a second mortgage, those that do consider you, will include the full mortgage as a regular outgoing – even if you are not actually paying it.
Don’t assume everything will go smoothly – always talk to an expert.
James Harris of J P Mortgages
4 The Crescent Adel, Leeds West Yorkshire LS16 6AA
Tel: 01132 677391 Mobile: 07912754191