Couples who are separating may need to consider the impact of higher mortgage costs and the end of older low‑rate fixed deals. When rates are high, this may result in couples having to decide between reaching a settlement or remaining in the property together for longer. These pressures are sometimes points of negotiation in financial settlements and, in some cases, delay agreement. Jenny Bowden, senior associate in our Divorce and Family team, discusses mortgage disputes on divorce.
How does divorce affect your mortgage?
The issue of fixed-rate deals versus variable rates in the current economic environment complicates everything. In the world of divorce, this issue has now become an additional negotiating hurdle, with some classing the fixed-rate deal as a ‘desirable asset’ and financial cases being delayed or going to court because nobody can decide who is allowed to retain it.
In many ways, getting ‘custody’ of the low-rate mortgage is akin to getting the house in France or the expensive car, as the partner paying off a loan at 1.5 per cent will save thousands of pounds compared to the one paying off a new mortgage at six or even seven per cent.
Our experience of mortgage disputes: why they arise and how they can be managed
Many separating couples are surprised by the complexity of their mortgage arrangements, particularly where the mortgage is in joint names but only one party has managed the finances. It is also not uncommon for parties to be surprised that a property is leveraged, and/or how heavily leveraged a property might be. The party that has negotiated a good mortgage rate will often be keen to hold on to it, even if the property it is attached to is going to be sold.
The court has a statutory duty to steer parties towards a ‘clean break’, i.e. a clear end to the financial ties that a marriage or civil partnership can create. Where mortgages are becoming increasingly difficult to obtain and/or sustain, this can make achieving a clean break even harder and may result in a financially stronger or higher-earning party having to remain on a mortgage as a guarantor long after the marriage is over, even in circumstances where they may have remarried themselves.
Time pressure is also a factor. Couples may need to re‑mortgage before a financial settlement is finalised to avoid increases in monthly repayments (e.g. if a fixed term is due to end and the mortgage will switch to a standard variable rate), which can add urgency and stress to negotiations.
Options for dealing with the mortgage
It is sometimes possible to agree that a mortgage is ported (transferred) over to a new property or transferred into one party’s name. The mortgage provider will have to agree. Generally, this is not an issue where the party wanting to take on the mortgage has the greater earning capacity, but a mortgage provider may not be willing to agree to the weaker financial party taking on the mortgage without a guarantor. The financially weaker party may also require a greater share of capital or ongoing spousal maintenance to meet these increased mortgage demands.
A court will take into account each party’s earning capacity and resources, including what capital they might have for a deposit and what mortgage they would need in order to satisfactorily re-house. Increasingly, both parties may need to cut their cloth, as a mortgage is now often required to fund two separate homes.
What if an agreement cannot be reached?
In all cases we deal with, parties are encouraged to consider alternatives to court. If the parties cannot resolve matters between them, then the court will have to make a determination. The court lacks the power to compel a mortgage company to do anything, but can order the sale of a property if an alternative compromise around the mortgage arrangements can’t be reached.
Why mortgage disputes are increasing for separating couples
Rising interest rates require creative solutions and a thorough evaluation of the options available to clients. As set out above, these pressures are creating new time constraints for couples who may need to re-mortgage before any final financial settlement is negotiated. They can also leave separating individuals remaining tied to each other and reliant on guarantees, leaving one party feeling beholden to the other – the exact opposite of how one wants to feel post-divorce.
FAQs
- Can I remove my ex from the mortgage without their consent?
A mortgage is a debt, so it is arguably unlikely that anyone would ever seek to remove a former partner from the mortgage.
However, parties may often wish to remove their former partner from the title of the property, which would usually go hand in hand with removing them from the associated mortgage. In either case, you would need the consent of both the individual concerned and the mortgage provider. If the former partner will not cooperate, the court can sign the relevant transfer documents on their behalf. However, the court cannot compel a mortgage company to provide lending to either party – that is a contractual matter entirely for the lender.
- Can I live in the house if the mortgage is in joint names?
Yes. However, this can often cause friction between separated parties: who should pay the mortgage, who should pay the bills, what impact this should have on the ultimate division of equity. If these issues cannot be agreed, the court would need to determine them. There is no one fixed approach and it all depends on the resources available to both parties.
This ambiguity is a good reason to resolve any financial disagreements promptly, to avoid a situation where one party feels disgruntled at being excluded or is left bearing the running costs of the property (or both).
- What if my ex stops paying the mortgage?
In a contractual context, responsibility for paying the mortgage depends on whose name the mortgage is in. The mortgage provider can pursue whichever party they believe has the greater resources, regardless of who is living in the property.
In the context of a divorce, though, it is less simple. The family court can order one party to pay interim maintenance to another to meet specified expenses (such as a mortgage) if you do not have the resources available to pay yourself.
Get in touch with our Divorce and Family lawyers.
