For those going through financial proceedings for divorce, it is becoming commonplace for the Court to request evidence of capacity to mortgage. Whilst this may be a worthwhile and logical exercise for some, for a number of individuals the prospect of paying for a full report may feel somewhat unfair, especially if their financial circumstances quite obviously deem them unable to secure mortgage lending.

Those who consider themselves as one of the following may know, from previously failed attempts at securing a mortgage or through their own investigations, that they are in no position to obtain mortgage lending:

  • No Earnings – Whilst mortgage lenders will accept a variety of income types, if an individual is unemployed or relies solely on benefit or maintenance income with no earned or other income being received, lenders will not consider them for mortgage borrowing.
  • Bankruptcy – Once Bankrupt, credit cannot be obtained for up to 6 years whilst the bankruptcy is recorded on credit file. During this time, it is highly unlikely a bankruptee can secure mortgage lending.
  • Debt Management Plan (DMP) or Individual Voluntary Arrangement (IVA) – Mortgage providers are highly unlikely to consider an individual for borrowing if they have an outstanding IVA or DMP.
  • Age – All mortgage lenders adhere to minimum mortgage term criteria. For the majority of lenders, 5 years is usually the minimum acceptable term. Certain lenders may consider a 2-year term whilst others may only accept a 7-year minimum term. For those over a certain age and approaching retirement this could render them unable to secure a mortgage.
  • Lending into retirement - If the client wishes to extend the mortgage past their retirement date and continue paying the mortgage whilst retired, mortgage lenders are likely to base their lending calculations on the applicant’s retirement income, not their current earned income. Therefore, if an individual does not have adequate pension provision, perhaps they have a reduced pension pot due to a pension sharing order with an ex-spouse, this could dramatically affect their ability to obtain lending, despite their current earnings.

Image result for reverse mortgage

I have received an increasing number of enquiries recently from individuals and solicitors in need of what I have come to call a ‘Reverse Mortgage Capacity Assessment’. This is where the amount of mortgage lending required is already known and what I am instructed to explore is how much income will be required to achieve the required level of borrowing.

The ‘income’ in most cases refers to maintenance payable by the ex-spouse. However, it could also refer to the amount of earned income required to achieve a certain level borrowing. This could relate to an individual who is looking to increase or decrease working hours; switch roles or seek new employment.

Image result for mortgage arrearsDuring the emotional upheaval of divorce it can be easy to let things slip, but forgetting or refusing to deal with debts and liabilities can have long lasting effects and should never be ignored.

'But I’m not living in the property anymore’ I often deal with clients who have moved out of the family home and either due to ill feeling or because they simple cannot afford to, have stopped meeting the mortgage payments on the family home. Whilst this may satisfy a short term financial need, it is likely to have long term effects. When applying for a new mortgage many lenders are only willing to accept applicants who have a clear and up-to-date credit history with no missed or late payments on any financial commitment for the previous 6-12 months. Furthermore, of the mortgage lenders who are happy to tolerate some adverse credit a maximum number of missed mortgage payments or arrears, often 3 consecutive months, are usually allowed. This means that if the applicant has missed 3 or more mortgage payments lenders may not consider them for mortgage borrowing for some time.

Image result for divorce and mortgageI have seen an increasing number of enquiries for Mortgage Capacity Assessments from clients going through Divorce who are aged 60 and over in recent months. Whilst Divorce at any time in life is difficult it presents a number of additional and unique challenges for those approaching, or already in retirement.

Traditional Mortgage Lending Is Not Always the Answer

Traditional mortgage lending can be very restrictive for those aged 60 or over. Especially those who are still working but within 5-10 years of retirement because many lenders will calculate borrowing based on retirement income, completely disregarding current earned income. Whilst some lucky individual’s may be in a position to enjoy a retirement with income equal to that of their previous working salary, most of us will see a drop, often substantial, in our income once we retire. This leaves less money available for mortgage lending.

Personal Finance Society Awards Dinner 2017

On Wednesday 22nd November 2017 I had the pleasure of attending this year’s Personal Financial Societies awards dinner at the iconic Roundhouse in Camden.  Celebrating the best in the business the PFS did a brilliant job in showcasing the elite in professional financial planning and journalism.

It was an absolute honour to have been chosen as a finalist in the Mortgage and Protection Advice Specialist award. Unfortunately I did not win the award, however, I remain a proud runner-up and a dazzling, glitzy and entertaining night was enjoyed by all.

The Bank of England (BOE) monetary policy committee is due to meet tomorrow to discuss interest rates and implement any changes. Predictions of a rate hike are widespread especially since the Governor of the Bank of England, Mark Carney, stated that he expects an interest rate rise in the ‘relatively near term’.

But what impact will an interest rate rise have?

An interest rate rise of 0.25% will increase the Bank of England base rate to 0.5%. Although this is still a historically low figure existing borrowers whose mortgages are directly linked to the BOE base rate will see an instant increase in monthly repayments. For example:

  • A £200,000.00 repayment mortgage on a 1.25% tracker mortgage linked directly to the Bank of England base rate would currently pay £942.27 per month over 20 years. Should the base rate increase by 0.25% the interest rate payable on this mortgage would instantly rise to 1.50%, increasing the mortgage payments to £965.09 per month over 20 years. That is £273.84 per year extra mortgage borrowers would need to pay.

The Personal Finance Awards are being held next month and I am excited to announce that I have been chosen as a finalist for the Mortgage & Protection Advice Specialist of the Year Award.

It has been a busy journey from entry to finalist. For Stage 1 I was required to write a personal statement describing myself, my expertise, qualifications and continued professional development.

Following on from this preliminary stage I was then invited to answer a 5 question case study. The case study for Stage 2 was actually quite complex and enjoyable to answer. Giving me the opportunity to showcase all I had learnt from studying for the Advanced Mortgage Advice qualification which I achieved in May this year.

 Mortgage Capacity Expert Changes her Name.....

  It is with great pleasure to announcement that our Mortgage Capacity Expert has recently married and has changed her name from Natasha Phillips to Natasha Palmer. I am sure you will join us in wishing her all the best for the future.

Natasha will continue to offer the same great service and any new Mortgage Capacity Assessment enquiries can be sent directly to her at: This email address is being protected from spambots. You need JavaScript enabled to view it. or feel free to call the office on: 0845 0179 578.

 

In recent weeks I have noticed a significant increase in the number of enquiries for Mortgage Capacity Assessments by individuals who are in no position to obtain mortgage lending. Whilst many of these individuals were already aware of their situation and were simply carrying out an exercise to pacify Court proceedings, it did come as a surprise for some.

There are many tell-tale signs of having the kind of financial circumstances which may not allow you to borrow from a mortgage lender and I will highlight some examples of these below:

Bankruptcy – Many lenders will not consider an application for mortgage lending from an individual who has ever been declared bankrupt and it may not matter how much time has passed since the bankruptcy. Many lenders are happy to consider an application once the individual has been discharged from bankruptcy for more than 6 years but even then obtaining lending may not be a straight forward process.

When calculating mortgage capacity for potential mortgage borrowers, those with low deposits (usually 5%) have, in the past, had very few options where mortgages were concerned. Following the financial crisis in 2008 few mortgage lenders would consider such high Loan to Value mortgages (95% loan with a 5% deposit) and for those who would consider this type of lending and in order to compensate for the increased risk to the lender, higher Interest Rates were charged.

In order to increase mortgage providers appetite for such lending the Government launched the Help to Buy Mortgage Guarantee Scheme on 1st January 2014.  The Help to Buy Mortgage Guarantee Scheme works in exactly the same way as any other mortgage except lenders are able to purchase a guarantee from the Government to support high Loan to Value lending. The Government charges the lenders a fee for this guarantee. The scheme was designed to increase the lenders appetite for such lending and we have seen an increase in the number of mortgage applications being agreed based on low deposits/high Loan to Values. However, this scheme is only available for a few more months as it is due to end on 31st December 2016.