Mortgage issues often prolong divorce settlements and the industry is missing an opportunity
Mortgage borrowing capacity has become a central issue in divorce proceedings, often delaying settlements and complicating the process for separating couples.
According to Paul Came, a mortgage broker experienced in supporting clients during divorce, financial settlement hearings are frequently postponed when mortgage capacity cannot be determined—typically due to sudden employment changes, incomplete financial disclosure, asset liquidation, or disputes that lead to arrears and bad credit.
“In my business, clients frequently request urgent written clarification during financial dispute resolution hearings to assist their legal advisers,” Came said.
A common misconception among divorcing couples, the broker explained, is around affordability and the factors that influence borrowing capacity. “Clients are often surprised by the amount of capacity available,” Came told Mortgage Introducer. “This can fuel challenges between parties, especially if there is a disparity of earnings.
“They are often surprised that benefits and child maintenance income can be used towards mortgage capacity. This can reduce the borrowing capacity of the person paying the maintenance, often the higher earner, while increasing the borrowing capacity of the lower earner, the one who usually has a greater housing need. This can have a pivotal role during the financial dispute resolution hearing in determining the judge’s decision and distribution of equity.”
Came (pictured above) is now calling for lenders and policymakers to introduce mortgage products specifically designed to support divorcees. “There is an obvious lack of mortgage products in the marketplace that specifically accommodate short-term credit blips for divorcees that historically have a good credit file,” Came noted. “Products designed as a ‘financial reset’ for divorcees that can demonstrate a good track record leading up to their divorce would be most welcomed.
“Higher loan-to-value products are often required following uneven equity splits, but general adverse products do not cater for this. Flexible underwriting for divorcees, resulting in higher loan to value borrowing capacity, would help divorcees with their future housing needs.”
While there are currently no mortgage products designed specifically for divorcees, Came stressed the importance of accurate mortgage capacity reports. He pointed out that some clients attempt to maximise their borrowing by extending earned income to age 75 on applications, though courts typically use retirement age for calculations.
“It is imperative that both parties provide mortgage capacity reports that are accurate, provide full rationale to support the calculation, and include additional scenarios that may be challenged by a family law court judge,” he said.
Came advised couples to seek expert mortgage advice early in the process and to minimise legal costs by remaining as amicable as possible.
“A divorce or separation for most couples will undoubtedly change their financial situation,” he said. “I regularly help clients that have built up high legal costs, often financed with the help of family members. Family law courts tend to treat family loans as soft debts and discount them for consideration towards equity splits.
“Obtaining good quality mortgage advice from an expert that understands the financial settlement process as early in the settlement process as possible will make a fair outcome much more likely. Understanding your financial parameters from the outset will help with successful mediation and negotiations, leading to lower legal costs.”
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