With higher rates suddenly making home loans very expensive, finding a solution to the property conundrum at separation could be trickier.
Evelyn Partners financial planner Ben Glassman explains that traditionally, a low-cost option has been for one spouse to remain in the family home as – apart from minimising disruption, particularly where children are involved – it will avoid some legal, mortgage and property transaction fees.
“But the spouse who stays will usually have to find the money to buy the other’s share of equity and, if they can’t draw on other assets to do so, the new interest rate environment could make it difficult for them to obtain the extra borrowing”.
He adds: “The shared mortgage could be on a low-rate fixed deal with years to go, and the spouse who departs might feel aggrieved at having to borrow at sky-high rates to fund their new property”.
Glassman says that If there is no option but to sell the home, in a weakening property market that could mean having to accept a lower offer than envisaged – and it could also mean having to pay an early repayment charge if the mortgage was fixed.
“Each partner, with their share of the equity, will then be faced with the task of securing a new mortgage at elevated rates to buy their own property – although one party could feasibly port any existing fixed mortgage if the lender allows”.
He concludes: “With rates where they are, a single buyer might find they can afford less than they’d hoped, without moving to a cheaper area – and this will be especially the case for older borrowers who cannot keep costs down by extending the term beyond 25 – or even 20 – years.”
