Over the last year, we have seen a £500 increase in the average monthly cost of a £250k mortgage, and this is set to rise again after some of the UK’s biggest lenders confirmed further mortgage rate increases on Tuesday.
Rising rates will hit those who have not remortgaged since interest rates shot up in late 2022 following the ‘mini’ Budget. About 1.6 million homeowners’ fixed-rate deals will end this year.
How do high mortgage rates affect divorcing couples?
When a couple separates, they usually decide to do one of two things with the marital home following a divorce. Either one party buys the other out, or they sell the property and split the proceeds.
Many choose to buy the other out, especially if there are still dependent children, because they want to keep their home after divorce and create as much stability for their children as possible.
The problem with high mortgage rates is that it impacts buyer affordability. With higher interest rates come high monthly mortgage repayments, and one person simply can’t afford to pay the mortgage on their own following divorce. This stops couples from buying each other out.
What is the best way to buy your ex out of the former family home after divorce?
The best way to buy your spouse out of your house after divorce is to pay them a lump sum equivalent to their share of the property. In return, they transfer any property rights that they’ve got to you so that you have sole ownership. If you are both on the mortgage, your spouse will be removed, and you will take out a mortgage in your name only following divorce. This is the best way of buying your ex out because it gives you both a financial clean break after your divorce so that you can move on with your lives.
What if you can’t get a mortgage in your name after divorce?
If you can’t get a mortgage in your name and buy your ex out of your home after divorce, you have a couple of options, but they require your spouse’s agreement.
If both of your names are on the mortgage and you can’t afford to get a mortgage on your own, you can both remain on the mortgage after divorce, but you agree that you will solely be responsible for paying off the mortgage.
A consent order makes this agreement legally binding so that if you fail to pay, the debt is your responsibility, not your spouse’s. However, as far as the mortgage provider is concerned, you are still both liable for the mortgage, so if you fail to pay, it will negatively affect both of your credit ratings.
A variation of this option that we are seeing more of because of the cost of living crisis is that both parties continue to pay the mortgage after divorce, even though only one remains in the property. At some point in the future, the property is sold, and the person who didn’t live in the property gets their money back and a share of the property. Again a consent order makes this agreement legally binding, protecting both of your interests.
Why you need a consent order if you’re staying on a mortgage after divorce
Both of these options are a good idea, especially if you’ve got children and you can’t afford the mortgage on your own following divorce. But it’s essential to have a consent order in place to give you absolute clarity on what you have both agreed to and to prevent either of you from changing your mind or going back on your word.
More and more, we are preparing consent orders where one spouse continues to live in the former family home, but both of them remain on the mortgage for several years following divorce, often until a child reaches a certain age or until an early redemption penalty has passed. Here are a couple of case studies demonstrating how such an agreement works.
Real Life Case Study 1
A couple has been married for 17 years, and they have two children, aged twelve and ten. The mother can’t afford to get a mortgage on her own after their divorce.
The father is moving out into rental accommodation, and they have decided that he will continue to pay the mortgage until the youngest child turns 18. When the youngest turns 18, they will sell the property.
Once the property is sold, the remaining mortgage and conveyancing costs will be paid off, and the father will get back the money he has paid off the mortgage since moving out, and then the remaining balance will be shared equally.
Real Life Case Study 2
Another couple are in a similar situation. They don’t want to sell, preferring to have a stable home for their children. The fixed-rate term has now ended, and their mortgage has gone onto a standard variable rate, which keeps increasing. The wife, who is remaining in the house following divorce, can’t afford to pay the mortgage by herself, so the couple has agreed that she will pay the amount that was previously fixed, and the difference now that it’s switched to a variable rate will be shared by the two of them.
With any situation like this, it’s crucial to make sure that a consent order is put into place because, in any informal agreement, either party can change their mind. Whereas with a court approved consent order, the court can make each party meet their obligations. And that’s important in a situation where you’ve got a joint mortgage. Because with a joint mortgage, you’re both responsible for making repayments, irrespective of whether you live there or are divorced, and both of your credit scores will be affected if you fall behind on mortgage payments.
Are you in a similar situation and need some advice? For more information about consent orders visit our page here, or call 0204 586 6111 or book a free consultation with one of our friendly advisers.