One much-discussed side effect of the financial crisis was a rise in the number of married couples who had technically split up, but were still living together, because they couldn’t afford to get divorced. Now mortgage providers have dreamed up a solution of sorts – the “divorce mortgage”.
This would allow one person to buy out their former spouse’s share of the family home for a set period. Lenders are responding to rising divorce rates among the over-50s, reports The Daily Telegraph. In the last ten years, divorces in this age group have risen by 11%, the biggest jump in any bracket. Of these couples, 28% ended up having to sell their house.
Ownership of the family home can be hard to resolve in a divorce. If one spouse can’t afford to buy their ex-partner’s share outright, their options are limited. The bank might lend the money, but only if stringent affordability criteria are met. If the mortgage is to be covered using maintenance payments rather than salary, most banks will need a court order setting out the arrangement, or proof of maintenance income over a certain period. A guarantor mortgage is one alternative, but it is not always easy to find someone to act as a guarantor.
Full details of how a divorce mortgagewould work are not yet confirmed, but the basic idea is that the bank would lend the partner who stays in the home a lump sum to buy out their ex-partner, says Olivia Rudgard in The Daily Telegraph. The lender would also lend them a further sum to pay the interest on the loan for a set period. Once this period is over, the borrower can sell, or take on the full mortgage alone.
The product could be introduced by the end of the year. Will it help? It depends on the terms. Depending on the level of competition and the number of providers entering the market, it could end up being little more than a costly short-term solution – akin to a bridging loan – to an already expensive and traumatic problem. But if the terms are reasonable, it could buy divorcing couples some breathing space to organise their affairs, or to retain the family home until the children grow up, for example.