What is “mortgage capacity” and why is it important?

When a couple separate and/or divorce and need to look at their finances, mortgage capacity can be an important consideration.

Mortgage capacity is all about how much someone can borrow and over what period of time. However, it is not just about the maximum about that can be borrowed, affordability also needs to be considered.

In many separation and divorce mediation situations one of the main issues to be discussed is where will both parties live. Sometimes we may be looking at whether the family home can be retained by one party and if there is a mortgage on the property, can the person considering staying in the house take over the mortgage and buy the other person out which means pay them an amount of money to represent their share in the property. The existing mortgage lender, or any new mortgage lender, will want to know if the person proposing to stay in the house, earns enough to take the mortgage over in their own name. They will be calculating mortgage capacity.

If the family home is to be sold, then we look at how the couple can both rehouse. We will look at what the sale proceeds for the family home would be and then we look at where the couple are thinking of buying new homes and what they will cost, including any stamp duty and moving costs.

We then consider everyone’s mortgage capacity so that we can see if the new homes being considered are affordable. We can also take into account other assets available to help meet housing needs, but the issue of mortgage capacity is an important consideration when looking at where both parties will live moving forward.

In mediation cases where mortgage capacity is a relevant issue, we will ask a couple to both make enquiries at an early stage. We often recommend couples seek the advice of a mortgage broker and/or a financial adviser and they can also speak with banks. We have a list of experts on our contacts database that we can suggest a couple speak with.

If you think family mediation can help you separate and/or divorce and would like to know more, you can call us on 0800 206 2258 or email us at hello@familymandm.co.uk. We also have a book now facility on the home page of our website where you can book a free call on a day and time to suit you – www.familymediationandmentoring.co.uk

 

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