Divorce rates in the UK have been climbing, said a report in the Telegraph newspaper on the 17th of April 2020. Indeed, a story in the Evening Standard on the 6th of January 2020 revealed the staggering statistic that, in that week, the volume of online searches for “I want a divorce” was 230% higher than in the first week of January just the year before.
In the trail of many of those divorces are likely to come difficulties with any mortgage arranged during happier times. So, let’s take a closer look at some of your mortgage buyout options following a divorce.
Perhaps the most straight forward solution to the problem of dividing equity in a mortgaged home is simply to put it on the open market and sell it.
Provided there is no negative equity, the outstanding mortgage can be paid off using the proceeds of the sale, and the remaining equity may be treated as a marital asset in the normal way and be divided accordingly. If that division cannot be reached through an agreement between the two parties, the courts may need to be called upon to decide.
Each party might then hope to use their share from the former marital home as help to buy an alternative property – as the deposit on a new home, for example, for which each of you will be looking to arrange a new mortgage.
Continue as you were
If you are still on good terms with your ex-spouse or partner, you might want to continue paying off the existing mortgage. There may be good reasons for doing so:
- if the mortgage is nearing the end of its term, you have the chance to completely clear the debt on the home and split 100% of the equity;
- there is no immediate change in ownership, of course, and you or your spouse might continue to live there until any children have reached the age of 18, suggests the Money Advice Service by way of example;
- if the mortgage is a fixed-rate deal still with several years to run, you might be paying less for your mortgage than if you each had to arrange separate, new mortgages; but
- you need to make sure that both you and your ex-spouse can continue to contribute to the mortgage repayments and find the other living expenses necessary after your divorce or separation.
You or your ex-spouse or partner may decide to buy out from the other the financial interest in the home.
If one or the other of you wants to keep the property in this way, then it falls to the remaining occupier to persuade the mortgage lender to transfer the loan into that name only. It is important to keep in mind that the lender has no obligation to do so and may continue to hold both the parties responsible for any joint mortgage. In other words, your lender is under no obligation either to release either party from a joint mortgage or to transfer the existing mortgage into a sole name only.
For the lender to consider transferring the mortgage into your name only, of course, they will need to be convinced of the affordability of the outstanding loan and your ability to repay.
With any such transfer approved, you may then buy your ex-spouse’s share in the property – for which you might need an up to date market valuation to calculate the equity held in it.
If you need additional funds to buy out your partner’s share, you might alternatively consider remortgaging the home.
To a large extent, the options described so far rely upon a degree of agreement between the parties involved. If this is absent, then the courts may be asked to intervene.
Among the orders which the courts have at their disposal are:
- Mesher orders – also known as orders for deferred sale – involve the court deferring the sale of a marital home until a particular date or event, which might be set at the date on which the youngest child turns 18, for example; or
- Martin orders are similar to Mesher orders in so far as the sale of the marital home is deferred, but, in this case, delayed so that one party – typically the one with insufficient financial means to re-house themselves – may continue to live in the property until they die or re-marry.
In either of these cases, of course, the transfer of an existing joint mortgage may be required, a new mortgage arranged, or a remortgage negotiated.