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The rise of the "divorce mortgage"

Lenders are considering the offer of a product aimed at those having to cope with divorce and buying out the other spouses interest in the family home. Under the proposed plan, the lender would give the borrower a lump sum, which they use to buy their estranged partner out of the home. What is so different, you might ask? Well, the aim of this product is to address situations where there is sufficient equity but the staying party does not quite meet standard lending criteria. The bank would also “lend” them an extra amount that would be deposited in a savings account and used solely to pay the interest on this loan over a set period of time.

At the end of that period the borrower could either sell, paying the lender back from the equity in the property, or take on repayment of mortgage themselves in the usual way if their circumstances had changed.  

I do see it is a way of helping someone stay in their home for a set period, for example, the term for the product could be as long as children are in full-time education. However, I do think it seems to tempt people with what may be an unwise option to grasp at by stretching their indebtedness at that time. For that reason I do wonder if that is ever a good thing.

No lender has yet announced such a product but there is hope there might be an offering by the end of the year. With the divorce rate where it is there are a lot of people in this situation who end up renting and end up in a period of dreaded "off the property ladder".

Since the Mortgage Market Review in 2014, lenders have been bound by strict rules that allow them to make only 15% of all their loans at multiples of 4.5 times salary and above.

The problem then is that salaries are not keeping up with property prices and mortgage lenders need to start to think about whether they can stretch that - but only if it is affordable.

In the past there were 'Shared Appreciatation Mortgages' which allowed a person to stretch their borrowing capacity but only on the condition the lender would then have a portion of the equity growth when the house was sold. Is that not a more equitable answer?

Apparently not. These have disappeared and are unlikely to re-emerge after the negative publicity they attracted when soaring property prices left home owners 'owing'  hundreds of thousands more than they had borrowed. Ironic really as in the commercial world people accept a lump sum in consideration for a share in their business/company all of the time.

What is so different when I keep hearing property prices have crashed/may crash at any time?  Surely the Mortgagee or Investment Funds pays their money and takes their chance like we all do?  After all, is it not a rebadged Shared Equity scheme as the government supports in new build homes?