Case Study: The Reverse Mortgage Capacity Assessment

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.

With regards to maintenance income, whether spousal or child, I am often instructed to explore how much maintenance is required to achieve varying borrowing amounts, which, for example, could range from £100,000.00 - £500,000.00 in intervals of £100,000.00. This can help highlight how much additional income is required to ensure suitable housing is achievable.

The results of these reports often vary drastically due to mortgage lenders varying criteria regarding maintenance income. Some mortgage lenders are happy to use 100% of maintenance income if there is a Child Maintenance Service Agreement or Court Order in place. The payment of maintenance will usually need to have been in place for several months, typically 3-6 although some lenders require 12 months history of this income with Bank Statements as proof. Many mortgage lenders will only take a percentage of this income and some will not use this income whatsoever. What is interesting and important to know for the negotiation of maintenance, is that large amounts of spousal or child maintenance may not always have the desired effect where mortgage borrowing is concerned. This is because many mortgage lenders are uncomfortable lending to those who rely heavily on maintenance income. Therefore, it is important to be sure that the amounts agreed will help and not hinder any mortgage related plans.