This is Confidante and Co with Carly James – new perspectives on family law.
Carly James: Welcome to the fourth episode in a four-part podcast series called Confidante and Co. I’m Carly James – family lawyer and founder of Confidante, a law firm which specialises in helping people with a family law issue such as divorce, separation, and children disputes.
The inspiration to record this podcast derived from a desire to showcase to people experiencing relationship breakdown, what other services and resources there are available to them beyond the legal process, which can help them to take control of their present and therefore their future.
As tackled in Episode Three, the greatest worries parents have when they’re thinking about bringing relationship to an end is the impact that may have on children.
But the second biggest fear is: how will the finances be divided? And where will they live.
A lawyer can help someone work out the finances and how they should be divided. But one of the factors they will look at is the financial resources available to each party. And that includes borrowing hence their mortgage capacity.
In most divorces, one, if not, both of the parties will need to use their borrowing capacity to make way for both parties to be able to rehouse themselves after the divorce, and what they can borrow is a key piece of the jigsaw.
Unfortunately, sometimes people are reluctant to gather this key information which can delay resolving the case. But it really is vital. And therefore, I wanted to create a podcast to deal with mortgages, to help people understand their options, what is required of them, and how easy it is to get this information which could unlock their case.
So, who better to invite to this podcast than the oracle himself, Peter Seymour of the Mortgage Shop?
Welcome, Peter. And thank you for joining me on the podcast
Peter Seymour: My pleasure. Thank You.
Carly James: I thought we would tackle the podcast by breaking it down into four sections:
Peter, a typical situation is that one of the parties wants to retain the former matrimonial home. And sometimes this is possible, and sometimes it isn’t.
In a situation where one of the parties does want to keep the matrimonial home but can’t afford to take the mortgage, the joint mortgage, into their full name, is it possible to keep the mortgage?
Peter Seymour: Yes, it is. And this is something which quite frequently happens, although I understand there are other implications in respect of the financial settlement, which might tend to blow this at times.
Carly James: And how does that impact on the party whose name is going to remain on the joint mortgage, but they’re not going to be living in the property?
Peter Seymour: Well, the problem is that they will probably struggle to have sufficient spare cash available to be able to satisfy lending criteria if they want a mortgage. And the other problem is where they’re going to get the deposit from, which would normally come from the disposal of that marital home.
Carly James: I suppose unless the person who’s keeping their name on the mortgage, unless they’re able to buy another property outright from other funds, or from borrowing from family, remaining on the joint mortgage is going to hamper their ability to buy another property. And so that might not be a suitable outcome.
Peter Seymour: That’s correct.
Carly James: And if someone can afford to take the joint mortgage into their sole name, but there wasn’t enough cash or other assets to fairly affect settlement, could they increase the borrowing against their former matrimonial home to release some cash to give to the other party?
Peter Seymour: That is possible be subject to the maximum loan to value of say 90% not being breached, and down to affordability criteria being was satisfied in relation to the other lenders are looking for.
Carly James: And what would a party need to demonstrate or provide to the mortgage providers for that to happen?
Peter Seymour: A complete application – which will include three months’ bank statements, credit card statements, proof of address, passports, tax information for the last three years, details of any debts, statements from the existing mortgage provider to confirm satisfactory funding of the mortgage, and we need to touch upon that, again, just very important, satisfactory funding of the mortgage.
This is Confidante and Co with Carly James
Carly James: So I suppose keeping the matrimonial home is possible in the following scenarios:
Peter Seymour: Yes.
Carly James: Peter, moving on to selling the former matrimonial home, sometimes it’s not possible to retain the matrimonial home or sometimes it’s not desirable to keep the matrimonial home.
So, in that scenario, if the property is going to be sold, and there is a joint mortgage, the options presumably would be to either pay off the mortgage from the sale proceeds, or to port the joint mortgage onto another property.
In a porting scenario, is it possible to port a joint mortgage into one of the party’s sole names?
Peter Seymour: Yes, we do this all the time. Frequently however, the borrowing capacity of the single individual is insufficient to match the expectations of lenders in relation to the entire mortgage. And so, if there is £400,000 outstanding on the mortgage, and they only need £250,000 or £300,000, then they can put that amount, the balance then must be repaid to the lender. And the borrowers must suffer an early repayment penalty because all mortgages these days are locked into fixed rates or tracker rates, most of which, in fact, carry quite high early repayment penalties, which can be up to 5%.
Carly James: I hadn’t appreciated that was the case with tracker mortgages. What would be the benefit of porting the mortgage – why would a party choose to port the mortgage instead of paying off the joint mortgage and then taking out a new mortgage in their sole name?
Peter Seymour: Well, the most significant saving is going to be the early repayment charge. What that has to be balanced against is if that mortgage has been running for two or three years, it will carry a historically high rate of interest, which could be half that under in the current climate, the kind of lending climate where rates have plummeted, so one’s got to balance the two against each other- is the cost of paying the penalty worth paying or is it better to dump it, pay the penalty and then take on another mortgage at a much lower rate of interest.
Carly James: So important to investigate both options because it could have a serious impact on your repayments monthly. And what would the party wishing to port the mortgage need to provide to the mortgage lender? Is it the same information as applying for new mortgage?
Peter Seymour: Yes
Carly James: And how long does the party have to port the mortgage? Because it’s sometimes the case that the matrimonial home is sold, but that party hasn’t found somewhere else to live. So, can they port the mortgage at a future date?
Peter Seymour: Upon selling the former matrimonial home, the full penalty is paid to the lenders, and you are then given three months’ grace in which to find another property, take on the mortgage – or a portion of the mortgage – to the property and then the repayment charge will be refunded.
Carly James: That’s helpful. What happens to the repayments in the interim – do they fall dormant?
Peter Seymour: Yes, dormant in that intervening period.
Carly James: Peter, moving on to buying a new property. If one, or both, of the parties wishes to buy a property, the first thing they’ll need to do – if there isn’t enough money to buy outright – is ascertain what their borrowing capacity is, and then they’ll need to work out what mortgage product is most suitable for them.
Often what happens when clients come to see me is that they’ve filled in an online mortgage calculator, usually with the bank that they bank with. And once they’ve worked out what they can borrow, they’re catapulted onto a page which has a plethora of mortgage products available to them. And at that point, they get very confused.
So, can you help us with what the differences are between the main mortgage products available, so fixed, variable and tracker?
Peter Seymour: Going back to your initial statement, the problem with going to one lender or going to their own website is you will be directed to their mortgage calculator, which is a gimmick.
It doesn’t achieve anything – because you don’t know how much you can borrow. You could attempt to assess how much you can borrow, but that really is in the domain of the underwriters who will decide how much you can borrow.
So, I would establish what you can borrow first before you go near the mortgage calculator. These calculators can be very, very misleading and it happens a lot.
Now, we have currently standard variable rate, which is a rate which is quoted by all lenders, you should if you are in that rate, then you have not been seeking advice to lock you into fixed rates or you have ignored all from your lender to when your fixed rate comes up review, you’ve ignored that, and the rate automatically moves onto the standard variable rate.
But the advice when we’re setting up mortgages is – generally speaking – a fixed rate.
Fixed rates come in a variety of forms – fixed for two, three, five, seven or sometimes even ten years. I believe have seven and ten years are too long – you don’t know what life holds for you that far away.
Normally our clients will lock into a five-year fixed rate. But they’ve got to be certain that they’re not going to either be separating or divorcing or selling up or moving house or whatever.
There is also a tracker rate, which is linked to the Bank of England base rate, these tracker rates are usually very low indeed. A number of them do not carry a repayment charges, which means that if you have a high enough salary, you can actually benefit from being able to pay down the mortgage debt whenever you receive a bonus or a dividend or something like that.
So essentially, we’re just talking about two different types of moetgages fixed and tracker.
Tracker is the adventurous or the short-term borrower. And the fixed is for people who are looking for stability in their lives.
Carly James: I think for a lot of people who are going through divorce proceedings, working out what’s affordable for them monthly going forward is an important exercise.
So that’s where a fixed mortgage might be beneficial because they can plan and know that they can afford in their outgoings.
Just going back to what you said about people who might fill in information online on a bank’s online calculator; it’s helpful advice that you shared, because people might even try and rely on that when they’re negotiating their case. So important for people to go and speak to somebody properly and find out what they can actually borrow in reality.
Peter Seymour: Yes, I agree.
New perspectives on family law. This is Confidante and Co – the podcast series from Confidante Law.
Carly James: In terms of the amount people can borrow, what are the main factors considered by mortgage lenders?
Peter Seymour: Income, basic income. Let’s talk about employees, first. Basic income, and if one has been in a job where one has earned bonuses for the last two years, those bonuses can be considered, sometimes 50%, sometimes 60%, occasionally 100%.
We are also able to consider overtime, sometimes commission – if one was a hairdresser, something like that. Many hairdressers receive 50% of their income in commission. And it represents a very important factor when negotiating with the lender to see how much the lender is prepared to take into account this for employees for self-employed, then we use an average of the last two years drawings from the company.
But on top of that, what most people don’t realise is that if there are any retained profits, which are carried forward from one year to the next, we can use 100% of the average of the last two years’ paying profits, which can make a significant difference.
Many people – advised by their accountants for tax reasons – will draw a basic income and will bank the rest of their profits in the company and can do so for years on end, and you see it’s accumulating year on year. And we can take that into account as well.
Carly James: That’s helpful. And often people going through divorce proceedings, they may decide that tactically it’s advantageous for them, although it isn’t, advantageous for them not to draw significantly from the business and to leave some undrawn dividend in the business. So it’s helpful to know that actually that will be captured potentially in a mortgage application.
And Peter, what if someone doesn’t have permanent employment, or they are working through a probation period?
Peter Seymour: Zero-hour contracts are viewed with great suspicion by all lenders.
However, somebody who’s been in a zero-hour contract for two, three or four years will be treated by most lenders as if they are fully employed.
Carly James: And what about somebody who’s going through a probation period because, again, what’s often applicable in a divorce case is that you may have somebody who’s been out of the workplace, and they need to get back to work to be able to get a borrowing capacity and have an income, or someone might change employment partway through the divorce proceedings to increase their income, and again, increase their borrowing capacity. So they may be in a probation period. And sometimes people’s probation periods can last for as long as six months. So how would that be treated in a mortgage application?
Peter Seymour: Well, if that individual is moving from a manager role in a Trust Company, to be a manager in another Trust company, the period of probation can usually be overlooked completely by some lenders, not all, but some of them.
If they’re moving into a completely new job, not having worked, perhaps after having bringing children up for the last couple of years, then that probationary period will probably have to be worked in full, although what a lot of employers will do, I’m sure you’ll agree that once you’ve been working in a particular job for a couple of weeks, or you’ve employed somebody in a job for a couple weeks, you know whether you’re going to keep them or not. And frequently, employers will be sympathetic to the cause, and will maybe reduce the probationary period from three months to maybe one and a half, or two months, often six months down to three or two – something like that. There’s a lot of flexibility.
Carly James: That’s a really good suggestion and something that people should think about if they’re going through divorce proceedings.
There’s no harm asking an employer, and as you say, I think employers would generally be sympathetic. If that meant that somebody could buy rather than having to move into the rental market, which will just eat capital, then I think employers would be prepared to consider that.
And a common question is: how do mortgage providers treat child and/or spousal maintenance?
And how can this be woven into an approval in principle application if the amount is unknown, so often before we get to the end of the case, we need the information in respect of someone’s borrowing capacity, but we may not have worked out what child or spousal maintenance looks like.
So how do you deal with that if you have someone coming to you asking that question?
Peter Seymour: Well, one needs to know what the maintenance is going to be to calculate or assess how much a person can borrow. So what we recommend is you work it round the other way, and say, this is what the maintenance split’s going to be – for you to be able to afford to sustain the existing mortgage, or take on a new mortgage.
Carly James: And is child maintenance something that can be taken into account?
Peter Seymour: Yes, but we must be very careful here. Because if there’s child maintenance on children over the age of ten, eleven or twelve that frequently would not be considered at all.
Carly James: That’s interesting. Why is that?
Peter Seymour: Because those children will be leaving school at sixteen, seventeen or eighteen. And there’s insufficient cash or funds there to satisfy lenders’ expectations. If the child maintenance is on a couple of children aged two, three four or five, then it can be taken into account as part of the total.
Carly James: What documentation will someone need to provide typically, if they’re looking to take out a mortgage?
Peter Seymour: Every piece of paper known to man!
We have an application form, we have KYC, which is the standard identification. Social security cards, proof of address, three months’ bank statements, three months’ credit card statements, two, possibly three years of tax assessments. That’s a difficult one because sadly, the income tax department is in a little bit of a chaotic state now and getting a tax assessment out of them is difficult. We’d need details of the property people are purchasing and we would need to have confirmation of the deposits. If it’s gifted funds from family need to have gift letter or gift letters, we’d have four previous statements from previous mortgages. That’s about it to start off with.
Carly James: I suppose that impacts on the next question, how long does it take for the application – and I suppose it depends on how organised somebody is in getting all their paperwork together…?
Peter Seymour: Pre-pandemic, four to six weeks, from applying for the mortgage to receiving an offer from the lenders. Post-COVID is anybody’s guess, can be measured in two to three months now depends entirely on the lender.
Because any number of lenders -in fact, all lenders – are currently working from home. This slows down the process significantly. Some lenders in Jersey have greatly reduced teams because some of their staff have returned to the UK during COVID. Others have staff off ill with long-term COVID. Now we usually recommend a minimum of eight weeks from start to finish. But that’s from applying for the mortgage to getting approval and a mortgage offer. If people are very organised and get all those all those documents together, which we’ve just identified can be quite difficult, particularly if the family is in chaos.
Carly James: So it’s really important for people to get organised, get their paperwork together and come to see somebody like you as quickly as possible to get that process in motion, given how long it might take and it will delay inevitably the sale if the sale is due to dovetail with a purchase. So, it’s really important to get organised and to factor that timescale in.
You’re listening to Confidante and Co with Carly James.
Carly James: Peter, if we can move on to more specific questions linked to the legal process.
For negotiations to take place, or for the court to decide in financial proceedings, parties are usually required to provide evidence of their borrowing capacity and their likely mortgage repayments. So how can mortgage providers help parties with this?
Peter Seymour: We produce an approval in principle document, and this can be waved in front of the legal representatives of the family, and we can take it from there.
But for us to be able to achieve that, we obviously must have researched – in depth – the finances of all parties involved; and that once again can be difficult, if the parties find it difficult to source some of the documents this will be a problem which we which we encounter.
Carly James: So again, important for parties to be organised and not expect to come to you and get that answer quickly. They need to come and speak to you and find out what they need to provide so that you can give them the answer. And how long does that usually take if someone does come to see you with all the information – how long does it take to get an approval in principle?
Peter Seymour: Backtracking on that…. Frequently we find we are talking to people for six, nine, twelve months before this happens because a lot of people when faced with the prospect of separation or divorce will probably try to backtrack a little bit because it’s a very demanding, very difficult part of their lives. So these things do take a very, very long time. And we might have three, four or five meetings with people before we get to the stage where we can give them an approval in principle.
Carly James: And if someone’s circumstances haven’t changed, they’ve got an approval in principle, but that’s expired, how reliable is that out-of-date approval in principle? Would someone need to come back to you to get that updated?
Peter Seymour: Yes, because we need to make sure and satisfy ourselves that they still tick all the correct boxes. And usually what it involves is maybe three months’ latest payroll slips, and three months’ latest bank statements, not a complete application.
Carly James: Peter, we were going to come back to a point. So maybe now is the right time to come back to one of the points you made earlier on.
Peter Seymour: Yes, and this is probably the fundamental problem which virtually everybody suffers from when they’re separating.
What happens is one of the aggrieved parties will probably storm out of the house and go and live in a flat or go and stay with parents or with a girlfriend or a boyfriend or whatever.
And there’s a mortgage to pay, their credit card debts to satisfy and the mortgage being serviced on a property which will have been the former home, which one of those parties doesn’t live in so they adopt the attitude, ‘Why should I bother to pay the mortgage?’
They see the credit card bills racking up and say, ‘Why should I be responsible for paying bills, which I’m not involved with?’ It doesn’t just happen to certain groups of people, it happens across the board, everybody. We’ve seen people with very high salaries, who five, six years later still can’t get a mortgage because they adopted this attitude. ‘Why should I pay the mortgage when I’m living in the house? Why should I pay the credit card bills when I’m not using a credit card?’ So, they stop payments – and this is the biggest cardinal sin you could possibly dream of committing, because it will mean that your life is going to be destroyed twice over. Not only losing your family and losing your relationship and your marriage, but you’re also losing the ability to be able to purchase property as well. So, it’s very, very important thing, which people just don’t imagine will affect them. But it does.
Carly James: So one of the most important takeaways from today’s podcast is – don’t let a lapse in judgement or your emotions run away with you or let repayment pass you by or take on additional liabilities that you can’t afford, because those short-term decisions can impact on your future for a very long time.
And Peter because we have you on, and the market is a bit crazy, do you have any predictions as to whether the market and the rise in house prices will slow down anytime soon?
Peter Seymour: The market has slowed significantly, because there is insufficient new stock being placed on the market by people wishing to trade up or down.
And that’s probably going to continue because many people who are now staying put rather than moving home to their forever home, are probably looking at those properties and say, well, it doesn’t look too bad, we can put an office here and we can build another two bedrooms on and whilst we’re about it, let’s spend a bit of money on a new kitchen – things like that. They’re spending, maybe, £250,000 on staying put rather than £500,000-£750,000 trading up. So that property in the middle of the market is never going to hit the market again for a very long time. Consequently, the opportunity to find reasonably-priced property in Jersey doesn’t exist now which is the problem that first time buyers are finding and particularly people in the category which we’re speaking about, they’re also going to have terrible problems in finding somewhere.
Carly James: So less buying and selling generally, but more demand for the properties on the market, which is making purchasing more difficult.
And we all know that being in a cash position is attractive for sellers, but it’s not always practical for buyers. So in that instance, rather than moving into the rental market, I suppose another takeaway from today is, to get your ducks in a row, to be proactive to find out what you can borrow. Get your paperwork together so at least you can be telling sellers that you’ve got your borrowing in place.
Peter Seymour: Yes, organisation is paramount.
Carly James: And Peter for anyone going through a relationship breakdown facing an issue with the transfer of a mortgage or applying for a new mortgage – what are your top tips to ensure the most favourable mortgage is secured?
Peter Seymour: By talking to a mortgage broker as soon as possible. If that mortgage broker is an honest individual, you can be guaranteed that you will have received the best advice possible and will be offered the lowest possible rates in the market applicable to you. That’s all I can suggest.
Research is very essential. And you can either do it by wearing out shoe leather traipsing around all the banks – and you can’t get an interview at present because they’re all working from home – or talk to a reliable mortgage broker and rely upon them to provide you with the advice that you need.
Carly James: And Peter, my last question is for some people, the sale of the former matrimonial home is a devastating prospect. Do you have any advice or words of wisdom from a mortgage broker’s perspective?
Peter Seymour: I’m afraid the brutal reality is that in many cases, the property must be sold, and people must move out and probably have to end up renting accommodation rather than buying again; but anybody who comes to us can rest assured that they will receive honest and straightforward advice.
I will also research the market intensely to make sure that if we are advising the house must be sold it has to be sold – there are absolutely no other options.
Carly James: Very wise words. Thank you very much. And thank you very much for joining me on the podcast.
Peter Seymour: It’s been a pleasure.
To listen to more from the Confidante and Co series of podcasts visit confidante.law
We know how daunting it can be to speak to a lawyer and potentially commence a legal process. If you are facing a family law problem, we want to help.
If you would like to hear a little more about who we are, whether we would be a good match for you or when we can get started, get in touch and let’s start the conversation.