Credit Crunch, Mortgage Grump

In the good old days (that seem to have ended in 2008) if one party wished, following separation, to purchase the other's interest in the matrimonial or otherwise jointly owned property, it was usually quite simple. For example, a wife (usually) would often seek the matrimonial home be transferred into her sole name so that she could continue residing there with the children during their minority.

The party remaining in the house would apply for a new mortgage to redeem the existing mortgage and if possible, raise the necessary lump sum to compensate the other party.

In the alternative, an application was made to the existing lender for their formal consent to transfer the house out of joint names into the sole name of the party remaining in the house. They would also apply to release the other party from the joint mortgage covenants. This latter issue would be subject to the usual income checks applied by the lender before they agreed to release the other party and which would otherwise leave them open to be a potential target to chase later for mortgage arrears.

Sometimes this was only possible if the resident party's parents acted as guarantor on the mortgage.

At the very least, if release was not possible, the mortgage company would still issue their consent to the transfer of the house even though the mortgage remained in joint names. The person staying in the house would provide some evidence in a Court order or agreement that they would indemnify the other party (ie. repay them) as to any action, claim or demand made against that person by the mortgagee for arrears or any shortfall on sale proceeds leaving the mortgage only partly repaid.

However, a recent review of mortgage lenders coupled with mortgagees reviewing their criteria (some would say to cut their lending) has led to the following:-

No guarantor now being generally acceptable.

The flexibility offered to the self employed of self certification mortgages faces a ban

Mortgage companies now insisting that the names on the mortgage deed reflect those on the title to the house. This is notwithstanding the fact it does not affect their security whatsoever if the house was transferred into only one of the borrower's names.

We are now having to provide to the Court the letters of objections of the mortgage company to any transfer with the agreed order settling matrimonial disputes by way of a transfer of property. Where previously, a mere separation agreement might have been sufficient if parties did not wish to divorce, it now means they are forced to issue proceedings not necessarily required. If not married, the Court cannot order a transfer anyway so even if agreed by the parties, it could not be done without the lender's co-operation. For married couples divorcing, it remains open for the District Judge to order the transfer of the property in spite of the mortgagee's objections.

Some lenders being aware of this are adding a seemingly veiled threat the parties may not be allowed any other lending in the future by them,eg a personal loan for a car. In effect, they are highlighting that they are marking their card (until the mortgage is paid off anyway).

The reality is that the mortgage companies know that by being difficult they may force the borrowers would go elsewhere or otherwise sell the house, thus paying off the mortgage (they hope) and easing their own cashflow difficulties.

For any advice on Divorce, or Separation Agreements or Financial Settlements, contact Lee Marston, lee.marston@clough-willis.co.uk