It is becoming increasingly difficult for those exiting relationships to secure mortgage lending.
The Mortgage Market Review, implemented in April 2014, is geared to preventing poor lending practices by institutions, and to facilitating access to mortgage borrowing for those who can afford it.
However, the MMR has also made it more difficult to obtain an interest only mortgage facility with lenders only allowing this if there is a credible repayment strategy ( i.e from a lump sum payment from a pension, sale of the home at a later date, sale of other assets or an investment portfolio.)
In the past it has been easier to obtain deferred orders for sale of the family home, but it is now becoming harder for the primary carer of the children to obtain a mortgage. Lenders will want to see documentary evidence of income from all sources, and will not consider maintenance payments unless they are subject to a court order. Even then lenders prefer that the primary carer has at least some earned income of her own to supplement the maintenance payments received. “Income” means basic salary, car allowance, large town allowance and any guaranteed bonus at 100% of its value. With regular, variable bonuses, a lender will look at a two year track record before it will count bonus payments as part of “income.”
For the self- employed, the lender will look at two or three years’ SA302 records provided by HMRC which confirms the total recorded income for those tax years. HMRC usually take three weeks to produce the SA302. If the self- employed person’s income has decreased, the lender is most likely to lend against the lowest figure produced in the last two years. If the income has increased, the lender is most likely to lend against the two year average.
Lenders also look at the following when assessing a potential borrower’s ability to fund a mortgage:-
- Credit card payments
- Other secured or unsecured loans
- Student loans
- Maintenance payable
- School fees payable
- Sometimes lenders will take account of personal pension contributions and save- as –you-earn schemes
Lenders have some flexibility in applying an income multiple to calculate the maximum loan they will provide, but this can be as much as 4 or 5 times income. Of particular interest to lenders would be:-
- The borrower’s age
- Income from all sources
- Credit score
- The length of the maintenance term contained in the court order
Lenders are unlikely to lend over a 25 year terms if the length of the maintenance term is linked to the child(ren) finishing education. In this case, the mortgage term will be linked to the maintenance term, which will drive up the cost of borrowing.
Before making enquiries with a mortgage broker about mortgage capacity, potential borrowers ought to obtain their free credit score from a credit scoring agency such as Noddle, Experian or Equifax first. At Myerson, we have close links with local mortgage brokers who may be able to assist you in securing a mortgage post separation.
If you require advice on divorce, financial matters or any other family law issue, please contact one of our solicitors on 0161 941 4000.