For many couples their family home will be their biggest asset and will involve a mortgage. As specialist divorce and finance lawyers we are often asked questions about how the mortgage should be dealt with.
Managing family finances over the divorce period as couples work towards a permanent financial settlement can be tricky. Deciding how to manage the mortgage on the family home and dealing with this cooperatively can not only ease some of the financial pressure but can even be a key part of negotiating the finances together for a fair outcome in the future.
Negative equity time bomb
However, in the wake of soaring mortgage rates and associated decline in house prices, more than 10,000 homeowners in the UK find themselves at risk of becoming mortgage prisoners, with a negative equity "time bomb" ticking away. For couples undergoing divorce, this economic landscape presents a unique set of challenges that demand careful consideration.
The surge in mortgage rates over the past 18 months has disrupted the relative stability that homeowners enjoyed during a period of low mortgage rates and exponential house price growth. Many individuals purchased homes at the peak of this market, and as a result, the number of houses acquired with a loan worth 95 percent or more of the property value doubled last year. For couples navigating divorce in 2024, negative equity becomes a pressing concern, with little relief in sight.
When there are no children
For couples without children, the decision-making process becomes multifaceted. When the family home is in joint names, in the absence of substantial savings or additional capital to offset negative equity, the options for couples include selling the property and agreeing to share the debt, or having one party, usually the financially stronger one, absorb the debt by agreement.
Retaining the house until the housing market improves is another option, akin to a ‘Martin’ type order. However, this choice introduces complexities such as determining who resides in the property, mortgage responsibilities, and the duration of delaying the sale. The family court generally discourages leaving the sale undefined due to the lack of certainty. A couple may consider the option of one party purchasing the other's share once the property's value exceeds the mortgage, though this may face resistance from mortgage lenders, particularly when the property is in negative equity.
When there are children
For couples with children, housing needs for the children take precedence, often leading to 'Mesher’ type order. Such orders typically involve retaining the family home until the occupant remarries, cohabits for six months or more, or the youngest child reaches the age of 18.
However, when the property is in negative equity, the decision to sell may be influenced by the consequences of sale on both parties, rather than the traditional triggers.
Other current cost-of-living issues to consider
In addition to negative equity, divorcing couples in 2024 must grapple with other cost-of-living issues. The financial strain caused by mortgage hikes and housing market fluctuations may amplify the challenges of spousal support, child maintenance, and overall financial stability. It becomes imperative for couples and their legal advisors to meticulously assess their financial positions and explore creative solutions to navigate these turbulent economic waters.
In conclusion, as the negative equity time bomb continues to loom over the UK housing market, divorcing couples face intricate decisions regarding the family home. A family law professional will provide invaluable guidance on navigating these complexities, ensuring that divorcing couples can make informed choices that prioritize financial stability and the well-being of all parties involved.