Castle Trust is to to start trying to target couples who are divorcing/splitting up (and their financial advisors) with its Partnership Mortgage.
The equity loan provider says the product could help thousands keep their existing property where one partner can continue to live, whilst releasing equity to help the other buy a new home. Around 42% of marriages end in divorce.
If they have at least 40% equity in their home, the Castle Trust Partnership Mortgage will enable couples divorcing/splitting up, to release 20% of the value. Castle Trust charges no rent or interest on their loan, but it shares 40% of any increase in the value on the sale of the property from the date when the equity mortgage was taken out. If the value of the home declines or stands still, borrowers only repay the original loan amount with no interest at all.
Latest research from Castle Trust reveals that in 18% of divorce cases, couples sold their marital home, with 20% losing money of on average £34,000.
In 34% of divorces, one or more of the partners could not afford to buy another home and in 15% of divorce cases, both partners were unable to afford a new home.
33% of people say that they would be concerned about the impact a divorce would have on their ability to afford a mortgage, while 41% of divorcees say that the lifestyle they can afford was adversely affected financially when they split up.
Richard Collins, partner in the family team at Charles Russell LLP, said: “Often clients have to sell the matrimonial home on divorce and the net proceeds of sale are needed to downsize and buy two separate properties in cheaper areas. That is usually only possible with a competitive mortgage.
“If a divorced wife’s only income is spousal and child maintenance or if she works part time, it is often very difficult for a wife to obtain a mortgage at a reasonable rate to purchase a new property for herself and the children. If there is insufficient capital to purchase two homes outright, the court will therefore often attempt to give a wife, if she is the residential parent of the children, as much of the free capital as possible in these circumstances, to limit her need for a mortgage so she and the children have as much security as possible.
“A husband, on the other hand, often has a greater mortgage capacity than his wife and so can be awarded by the court less capital after the sale of the former matrimonial home as he can borrow more of what he needs. If the former matrimonial home is transferred to the wife without her own income, often the lender will not approve the husband’s release from the mortgage. If the house is transferred to the wife’s name subject to the mortgage, the question frequently arises whether the husband should guarantee the existing mortgage or the wife’s new mortgage. This will typically affect his ability to obtain his own mortgage and purchase a new property for himself.
“The ability to finance new homes affordably for the separated family after divorce is often a key issue.”