With the current interest rates and cost-of-living prices, affordable mortgages are a key concern for many homeowners. This is true for couples who are going through a divorce and are wondering how this will affect the arrangements they have in place regarding their mortgage.
The majority of divorcing couples will have a mortgage, and the family home will most likely be their biggest asset. The mortgage could be in both parties’ names, or it may just be in one name, either way, the house will be considered as a matrimonial asset and therefore will be dealt with as part of the divorce financial settlement.
What are the options when dealing with a mortgage during a divorce?
Generally speaking, there are 3 options in which a matrimonial home is dealt with when a marriage or civil partnership ends. Each of these options has a different arrangement for the mortgage. It’s important to note that if your property is in a position of negative equity, there may be additional steps that need to be taken.
The most common options are:
Selling the former matrimonial home
If you decide that you’re going to sell your house as part of the divorce, then usually both of you will agree to appoint an estate agent to get the best sale price. Once the sale is agreed, your solicitor will obtain a redemption statement from the mortgage company to find out how much is left to pay. When the sale is complete, the solicitor will redeem the mortgage in full, ending all liability and obligation that you both have to the mortgage company. The net sale proceeds would then be divided in the proportion you have agreed as part of any settlement.
Keeping the matrimonial home
If one of you owns the matrimonial home in their sole name and you decide that they will keep it then usually the first step is to agree the value or agree to get it valued by a professional that you both agree on. This would help you decide what, if any, lump sum should be paid to the party leaving the property. There would be no need for a transfer of property or redemption of the mortgage in this scenario because it would already be in the sole name of the party keeping the property.
If the property is owned in the sole name of the party who is transferring the property, then you will go through the same process as outlined above to ascertain the value and any necessary lump sum but there will then need to be a transfer of the property and redemption of the mortgage. Both you and your spouse would require separate conveyancing solicitors for the transaction.
If the mortgage is in joint names and it is being transferred to one of you, you would either ask the lender to release the other party from the existing mortgage, or you would take out a new mortgage in your sole name and redeem the existing mortgage.
What if the lender will not agree to a property transfer
The legal title of a property can only be transferred with the approval of the lender. If the lender will not agree, for example because the party wanting to remain in the property does not have the necessary borrowing capacity, but you do not want to sell the house, then you can have an arrangement whereby the property remains in joint names to be sold at some future date or on the happening of certain trigger events, for example when a child of the family completes secondary education. This is known as a ‘Mesher Order’ and this may be appropriate where the parent with care of the children wishes to remain in the matrimonial home but does not work, or only works part-time. This can be Ordered by agreement as a Financial Consent Order or by the Court at the conclusion of Financial Remedy proceedings.
What happens if my house is in negative equity?
Negative equity means that more money is owed to the mortgage company than the amount that the house is valued at. If this is the case, then it is unlikely that the mortgage company will release you from paying the mortgage.
This means, if you sell the house, you or your former partner will also have to raise a lump sum to pay back the mortgage at the time of sale.
If either party plans to keep the house, then it’s worth considering raising a lump sum to reduce the mortgage providing more options to remortgage into one person’s name. Seeking independent financial advice is a good idea to fully understand the best options for you.
Despite the options being limited in respect of negative equity properties, our team of expert solicitors have a range of experience to help create solutions that mean our clients can move on with their life financially following a divorce.
For further information about divorce and mortgages, contact us for trusted, confidential advice.