John Phillips is group operations director of Spicer Haart and Just Mortgages
According to recent industry statistics, 28% of divorcing couples are left with no choice but to sell their home because they do not have the funds to buy the other out or keep up with the monthly repayments. In light of this, lenders are now devising a new ‘divorce mortgage’ for those who are forced to sell their house, buy the other person out, downsize or move into rented accommodation after they split from their partner.
In fact, this new mortgage could even be offered by the end of the year which should be seen as a positive thing because there is clearly a gap in the market and demand is high. This could be because we are all living longer and the ageing population is growing fast but, whatever the reason, there is no disputing that marital splits bring both personal and financial pressures.
This divorce mortgage could act as a potential lifeline for many, allowing one person to borrow enough money to buy their partner out for a set period of time. This allows them to stay put, avoiding the added trauma and upheaval of moving. However, although the housing market looks on course for a buoyant 2016, anything could happen and a tougher market would make it harder to sell. It is therefore positive that banks are recognising that this is an underserved area of the market and an innovative new mortgage could really support the increasing number of homeowners who are divorced or separated.
Previously, borrowers were offered shared appreciation mortgages but, due to rising house prices, many homeowners were left owing hundreds of thousands more than they borrowed. Therefore there is a limited choice for those wanting to take on a mortgage that was previously held by two people. However, in my opinion, as long as borrowers keep on top of their finances and seek appropriate advice before, during and after divorce, this mortgage could be the answer.
Although the divorce mortgage doesn’t yet exist, there is clearly a growing demand for it, with an increasing amount of people having to rent. But this needn’t be the case. A significant proportion of homeowners have no choice but to move out after divorce or separation and, if banks can find a feasible way to stop this from happening, it would certainly make sense. This type of mortgage is long overdue and it will be interesting to see which of the big five lenders start the ball rolling.