They say in life the most stressful things you can do are get married, have children, buy a house and divorce.
Going through a divorce can impact all 4 of these elements. When deciding who gets custody of the children and what to do with your assets you always think ‘What do we do with the house?’, but that leads to ‘What do we do with the mortgage?’.
When going through a stressful situation like a divorce, you probably don’t know where to start when it comes to ‘splitting’ the house. Well, that’s where we come in!
Typically, there are 3 main options when it comes to your mortgage in a divorce and we’re going to go through these each in detail here…
1. Sell the property
The simplest and most straightforward is to sell the property and split the proceeds however you decide. This would mean that you would repay the mortgage in full, any equity in the property would come back to you on completion and you can decide how you wish to split that equity. With that equity this can then form a deposit for each party to use as a deposit to buy their own property in the future.
2. Remortgage to buy the other party out
The option we so mostly (obviously being mortgage advisers!), is one party wanting to ‘buy out’ the other in the form of a remortgage. Essentially after having the property valued, and speaking with your divorce solicitor you will have a settlement figure in which you pay to the other party in return for keeping the family home. This could be for example 50% of the equity within the property. You give your ex-partner 50% of the equity and you keep your 50% of equity within the property.
Here's an example:
If the property is valued at £200,000, and you have a £50,000 mortgage remaining in place. This would leave £150,000 of equity within the property. 50% of that £150,000 figure is £75,000. If you wished to remortgage to pay out your partner you would need a new mortgage of £125,000. £50,000 to repay the existing joint mortgage, and £75,000 additional borrowing that will be paid to the your ex-partner on completion.
The result:
You keep the family home with a larger mortgage, your ex-partner walks away with £75,000 to leave the home and start again with.
3. Transfer the existing mortgage to one party only
If you do not need to raise any additional funds to buy out the other party, you can speak with your current lender to ask if they can remove one party from the mortgage, leaving one sole applicant. This is up to the lenders discretion whether they can do this. It is unlikely they can do this due to the legal implications but some can do this for you.
Best advice is to speak with a divorce solicitor before speaking with a mortgage adviser, as a mortgage adviser our role is to arrange a new mortgage for you. No play referee in your divorce or to tell your ex-spouse what they are entitled to in this case. That is the job of your divorce solicitor. We advise that you speak with them first and decide what you are going to do with the property first, and how you are going to split it. Then, once you have that figure come to us with that figure and we work all of our calculations and efforts around that figure.
Just like when you bought the property initially, and if you’ve ever moved your mortgage to another lender, you will need a solicitor to handle the legal work of removing one party from the mortgage. In an ideal world the solicitor handling your divorce works for a legal firm that has multiple departments – including a conveyancing department. That way you can use the same firm to handle everything for you which can streamline the process and reduce the stress of an already stressful situation.
The legal process needed is to either remove one person from the mortgage deeds and title deeds via a ‘Transfer of equity’, or to sell the property for you.
A transfer of equity is required when you remortgage to remove one party from all the deeds to the property. A transfer of equity is an additional legal process within your remortgage legal process where one party signs paperwork to surrender their rights to the property in return for a financial pay out. The paperwork they sign means they in return for a financial settlement will surrender their rights to the property and any money from it, and will not challenge you in the future on this.
Just like when you instruct a solicitor to guide you through the legal side of a divorce, you should instruct a mortgage adviser to guide you through the financial side of the divorce when it comes to your mortgage. A divorce is stressful enough, don’t tackle this aspect alone and instruct a great mortgage adviser to help you!
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