Second Home Mortgages and Divorce Situations

Michelle Tuvey Michelle Tuvey | Loan Underwriter

A recent bit of advice offered by This Is Money's Sarah Davidson regarding buying a second home in a divorce situation opens the door to talking about a certain segment of the property market that doesn't get a lot of attention: second home mortgages in divorce situations. It is important enough that we will address the topic here.

Davidson's advice was prompted by a letter she received from a woman who was in the process of divorcing her husband. The current property shared by the couple was purchased with a mortgage that lists both as owners of the home. Davidson was asked to explain whether the woman could get a second home mortgage and, in the event that was possible, whether she would pay the extra stamp duty assessed on second homes.

This is a complex situation, for sure. Davidson's answer covered several different points as explained below. If this is a situation you are dealing with yourself, it's always a good idea to get expert advice from a conveyancing solicitor before moving forward.

The Current Mortgage

In this particular case, the husband agreed to buy out his soon-to-be ex-wife's interest in their shared property so as to take on the entire mortgage by himself. However, a buy-out is not really possible in the strictest sense of the term. Instead, the husband will have to apply for an entirely new mortgage that is in his name only and is based only on his income. If that mortgage is approved, it would be used to pay off the existing mortgage. It would also give him full legal ownership of the property.

Should the husband be unable to do that, any mortgage used to obtain a separate property for the wife would be considered a second property. It would be subject to higher stamp duty as a result. More on that in just a minute.

Applying for a New Mortgage

Second home mortgages can be difficult to obtain depending on how and why they are necessary. In this case, a question was asked as to whether the wife could apply for a separate mortgage before her name was removed from the existing mortgage. She can, but that once again brings us back to the issue of second home mortgages and stamp duty. She would be far better off waiting until her name was off the current mortgage.

When she does eventually apply for her own mortgage, the lender will look at all her income ?? including any maintenance payments. But those maintenance payments may be subject to some restrictions. It would all depend on how much the payments were and whether they pertained to children.

Davidson pointed out that there may be some lenders willing to approve the wife's mortgage before her name is removed from the existing property, stipulating that the mortgage will not actually be awarded until her name is removed.

The Stamp Duty Question

Finally, the additional 3% stamp duty only applies to second homes and rental properties. The husband is not likely to incur the additional stamp duty because he is simply applying for a new mortgage to pay off the existing one. As for the wife, she will avoid this extra stamp duty if she waits to have her name removed from the current property before purchasing another one. If that's not possible, she can still apply to be reimbursed for the extra stamp duty as long as the current property is legally turned over to her former husband within three years.

Sources:

This Is Money ?? http://www.thisismoney.co.uk/money/experts/article-4135550/I-m-getting-divorced-pay-additional-stamp-duty.html

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