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UK mortgage and divorce. What to do?

Kredyt hipoteczny w UK a rozwód. Co robić?

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When you take out a mortgage for a house together, you dream of starting a family there and want to treat it as your safe haven. At such a point, however, we do not think about the fact that, for various reasons, the marriage may break up and the consequences of divorce will also affect your finances. What should you do if you decide to separate in the middle of paying off the mortgage?

Shared responsibility

Shared responsibility
Shared responsibility

In the vast majority of cases, married couples apply for a mortgage jointly, so that in the documents, both people are listed as responsible for repayment. From a formal point of view, it is irrelevant whether both mortgage borrowers incur equal instalment payments during the marriage. Even if it is one of you who takes care of the repayments, you will both suffer the consequences.

Already at this stage it is worth pointing out that if your ex-partner does not settle the obligation, your credit score will also suffer. Unpaid mortgage instalments can also ruin your image in the eyes of the banks, so it is important to take the necessary steps very quickly.

Divorce with joint mortgage step by step

If you are aware of an impending break-up, you should inform your bank as soon as possible, especially if you anticipate a temporary loss of liquidity. As long as you engage in a conversation with your bank, the suspension of repayment should not pose any major problems. In other cases, the consequences can be serious and even include the auction of your house.

Division of property

Divorce with joint mortgage step by step - Division of property
Divorce with joint mortgage step by step – Division of property

You also need to consider what will happen to the property itself and the mortgage. There are several options for solving this problem:

  1. Sale of the property – one of the most common solutions is to put the house up for sale and divide the property. You will use the proceeds to pay off the remainder of the mortgage and divide the remaining balance equally between you. If the mortgage agreement has been in place for some time, you will probably have enough money left over for each of you to be able to pay the rent on the new premises for some time;
  2. Completing the repayment of the mortgage – some couples choose to remain in repayment. In this situation, one person moves out of the house and their share of the instalment is treated as maintenance. It is up to you to determine the issue of accounting for your expenses, but we personally do not recommend this solution, as your ex-spouse’s financial problems may harm you;
  3. Paying off an ex-partner and keeping the house – if one of you has a high enough income and savings, you may decide to stay in your existing home. Then, this person should give back the part of the capital that you have already returned to the bank. This solution also involves amending the mortgage agreement. The bank may not agree to this if the new applicant’s earnings are not high enough.

Options number 1 and 3 require you to make formal changes to the ownership structure of your existing home. This means that it will be necessary to employ a solicitor to deal with this. The transfer of equity is done on a similar basis to the sale of a property.

Division of residual property

Divorce with joint mortgage step by step - Division of residual property
Divorce with joint mortgage step by step – Division of residual property

According to the gov.uk website, a divorce settlement also covers other areas of your finances. This is important because the settlement may affect your later creditworthiness – on the one hand, any child-rearing allowance is a regular expense for the person giving it, and on the other hand, the person taking it has a regular income from it. Be sure to keep this aspect in mind when discussing your finances.

Termination of the credit agreement

Once you have officially dissolved your marriage, it will be time to close matters relating to your current mortgage. Banks do not have strict deadlines, after all, you can continue to pay your obligation even after the separation, but we suggest that you deal with this matter as soon as possible. If one of you wants to stay in your home and complete the repayment, there is a better solution to this problem, but we will only get to it later in the article.

Divorce with credit repaid by one spouse

Divorce with credit repaid by one spouse
Divorce with credit repaid by one spouse

If the documents show the details of only one person, the matter gets a tad complicated. As a general rule, UK law recognises that movable and immovable property bought during the marriage is a joint asset, so your house will also be subject to division. If your ex-partner wants to kick you out of the house, treating the burden of repayment as an argument, check out the guidance published by the UK government.

The situation is slightly different if the marriage has already taken place after one of you has bought the property. In such a situation, the divorce does not entitle the other person to initiate any claim on the property. Although ejecting her from the house further is not so simple, the house will remain the property of the person who acquired it.

Will the credit be divided equally?

Will the credit be divided equally?
Will the credit be divided equally?

Unfortunately, divorce does not always go smoothly. If you are arguing over the division of assets, you are likely to enter a court case, which can cause a lot of confusion when it comes to finances. It is very rare for a judge to decide on a symmetrical distribution of property – many factors are taken into account, such as the interests of your children, your income, health, personal debts or savings. For this reason, it is often more worthwhile to negotiate and come to an agreement together.

Legal proceedings also involve legal costs, unless you opt for the assistance of a non-profit institution.

New credit and divorce

New mortgage and divorce
New mortgage and divorce

Well, after a break-up you have to live somewhere. If you decide to stay in your existing home, you need to deal with the repayment in some way. It seems to us that the most sensible solution would be to refinance the mortgage, which could prove to be a change for the better. Chances are that you will find an offer with a lower interest rate than your existing one, allowing you to more comfortably repay the remainder of your commitment.

If it is your ex-partner who remains in your current home, you have no choice but to find a new property. If you are lucky, you will receive a certain amount of cash, which may allow you to cover the down-payment on your new mortgage. If you have had no repayment problems to date, your credit history is probably quite good, so you can count on the terms being as affordable as possible.

By taking a mortgage without a partner, you have to bear in mind the additional financial risk. After all, in the event of a loss of income, you will not be able to rely on financial support from your spouse, so it is worth considering purchasing income insurance. The new regulations oblige us to offer you this product when you apply for a mortgage.

Summary

When entering into a marriage with another person, we do not usually look far into the future. Yes, it can be said that young couples often also share dreams that are frequently connected with buying their own home, but these certainly have nothing to do with the deterioration of intra-marital relationships that may even lead to divorce in the long term.

In today’s article we have looked at the situation in which a couple with a joint mortgage decides to divorce. For obvious reasons, no one would want to experience this, but when we do have to face such a problem it is worth keeping a cool head and acting rationally. We hope that, with the advice we have presented, you will be able to emerge from this difficult situation without any major losses and, above all, with a clear conscience and a positive outlook on what lies ahead.

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

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