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Managing the financial impact of divorce

Managing the financial impact of divorce
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Although official figures released last year show that the national divorce rate is at its lowest level since 1981, it is still an event familiar to many thousands of Brits and one that may be a daunting prospect for thousands more.

And while it is often an emotionally traumatic experience, the recent economic problems being felt in households throughout Britain may well bring an added element of stress as couples try to separate their savings and assets fairly.

One of the common financial difficulties experienced by divorcees is working out how to wind up their mortgage fairly and what will happen to the marital home.

What are the options?

Broadly speaking there are two options open to divorced couples looking to split up their property assets: sell the house or switch the mortgage over to one party. While the first option is often simply, it can still be an emotionally difficult decision for people to make and the ease of doing this is often complicated where young children are involved.

For those who wish to stay in their home, a common method of doing so is by reapplying for a mortgage on the property. However, it is important to note that there may be difficulties in choosing this track.

One of the main problems encountered by those applying for a new mortgage is that the lender will carry out checks to assess whether the person will be able to make monthly repayments without the support of their spouse.

Importantly, many lenders do not take account of important sources of income such as working families tax credits or out-of-court settlement arrangements from divorce proceedings, causing many people to be refused a mortgage on the grounds that they do not earn enough money to keep up with payments.

Furthermore, mortgage lenders are under no obligation to offer a new loan to those who want to exit a joint mortgage and this can present particular problems when the person who wishes to remain in the property has to take on a larger loan in order to buy out the other half's share of the home.

Finding ways to re-mortgage

The above scenarios may paint a worrying picture for those trying to secure a new mortgage deal on a property; particular for those who have been full-time parents.

However, Kim Lightfoot, financial planning consultant at PKF, has offered a few words of encouragement and advice for those looking for a new mortgage deal.

Speaking to Inside Divorce, she advised: "If you're newly divorced and have never had to deal with the mortgage before, book an appointment with a financial advisor. They'll be able to talk you through all your options and it will suddenly seem much less daunting."

One effective way to find a new deal may be to approach a lender such as Yorkshire Building, which launched an innovative new mortgage product in 2005 designed specifically to provide financial help for people exiting a marriage.

The Fresh Start mortgage differs from typical home loans in a number of respects and Yorkshire Bank is careful to take into account sources of income that some lenders do not consider when resolving mortgage applications.

Specifically, people applying for Fresh Start mortgages can include details of tax credits, as well as any out-of-court maintenance arrangements agreed with their ex-partner, providing a solicitor has given written proof of the payments that the ex-spouse has agreed to make.

In addition to the initial support given to divorcees, Yorkshire also aims to provide expert assistance and advice that can make it easier for people to get back on their feet financially after divorce proceedings.

And for those who are still concerned about the future, Yorkshire also offers family protection cover that will provide support for mortgage payments in the event that people running into difficulties with mortgage payments due to a change in circumstances.

Such products may well be of comfort to those who are facing the prospect of divorce and while there is always likely to be a great deal of emotional strain in breaking up, it is important to remember that there are options available to ease the financial burden of ending a relationship.

For those who are unsure of which avenue to go down when searching for new mortgage options, contacting an independent financial adviser may be an effective way to assess the different options available.

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