The world of Mortgage Capacity Assessments is always changing and this month is no exception – Changes to Stamp Duty Land Tax came into affect on 1st April 2016 which will effect those purchasing Buy to Let properties and second homes. The new rates of SDLT for these purchases are as follows:

Purchase price of property  – Buy to Let/ Additional Home Rate

Many of us, not all of course, have enjoyed a comfortable lifestyle over the last 5 years. For those with high Fixed Rate mortgages ending in this period will have switched to a low variable rate and benefitted from significantly lower mortgage payments. Purchases on Credit Cards will have been done so at relatively low rates and for many of us life after the recession has recovered nicely. However, with Interest Rates likely to rise in the near future what can be expected particularly for those going through divorce?

Increased Mortgage Payments: The most obvious change will be increased mortgage Interest Rates and therefore higher mortgage payments. Unfortunately, this means that households will have less disposable income each month. More importantly from a lending perspective the amount individuals are able to borrow may reduce and we could also see mortgage lenders tightening up their lending criteria especially where affordability is concerned. With a reduction in affordable borrowing, individuals going through divorce may need to lower their expectations where prospective properties are concerned, potentially compromising price, size and/or area. For those who already have a mortgage and are currently on a Fixed Rate any increase on the Bank of England Base Rate will not affect them. However, Fixed Rate deals do not last forever and when the current deal ends preparation should be made for an inevitable rise in mortgage costs. For those on Variable Rate mortgage deals an immediate increase in payments will occur.

If you are going through Divorce and questions affecting your future housing and mortgage needs are being discussed it is likely your legal representative will ask you to find out your mortgage capacity. It might be easy for you to have a quick search on-line or have a chat with your existing lender; however, it is vital you get accurate information. Without it you could find yourself in difficulty post divorce:

High State Benefits & Maintenance – Upon separation many people find that they are entitled to claim benefits such as Working and/or Family Tax Credits. Although this income is often a welcome requirement it can lead to problems when applying for a mortgage. Providers are not keen on lending to those who rely heavily on State Benefits or Maintenance income. They prefer to base lending decisions on earned income and if 50% or more of your income derives from other sources your mortgage application is likely to be declined.

A friend of mine who is currently going through a divorce recently came to me with a problem – She had done everything right during her divorce so far; she had sought advice from a reputable Family Solicitor and agreed that the most amicable course of action would be to go through the process of mediation. Access and maintenance payments for the children were dealt with quickly and her husband agreed that, assuming she could take over their mortgage by herself, she could keep the house in return for him retaining his pension and savings. With negotiations proceeding so smoothly all appeared to have gone in her favour…..or so she thought.

As we all know once a divorce settlement has been finalised it cannot be re-written, therefore, getting it right is imperative. Emphasis should be made on ensuring you have the correct information from the outset to allow you to make the right decisions, save time and money.

I  was contacted recently by a couple currently going through Mediation in an attempt to amicably finalise the financial details of their divorce. They were, however, unable to agree on the amount of Spousal Maintenance payable by the ex-husband (Mr P) to the ex-wife (Mrs P) and the disagreement threatened to derail the whole mediation process. They needed to know how these payments would affect their mortgage capacity which they hoped would then resolve this final issue.