Divorce and property investments can be very difficult to navigate
Our client recently faced the complex and emotionally charged task of separating finances and property ownership after splitting from his partner. The couple had a joint mortgage on their residential property, a buy-to-let (BTL) property with a mortgage, and a second home with no mortgage. Their plan was to reorganise ownership of these properties in a way that facilitated their financial separation smoothly, as well as their divorce.
The Challenge That Comes With Divorce And Property
- Property Reassignment and Financing Needs:
First Residential Property: Intended to be transferred entirely to his partner’s name.
Second Residential Property: Planned to be transferred to our client’s name, with a need for a new mortgage to facilitate the buyout.
BTL Property: Our client aimed to raise funds to buy his partner out of this property as well.
- Mortgage and Affordability Issues:
The client needed a new mortgage on the second home to raise the necessary funds. Lenders were hesitant to approve the mortgage since he had not yet moved into the property and still shared a mortgage on the first residential property. His income did not support the affordability for two residential mortgages simultaneously.
Strategic Solution
To address the client’s needs, we had to find a lender willing to accept the planned changes:
- The client intended to move into the second residential property.
- He would be removed from the mortgage on the first residential property.
Mortgage Application and Approval
Leveraging our extensive contacts within the banking sector, we were able to find a lender amenable to this arrangement. This lender accepted the plan and provided a mortgage offer within a week, an impressive turnaround in such a complex situation.
Handling Property Valuation And Loan-to-Value (LTV) Constraints
During the mortgage application process, an unexpected challenge arose:
The second residential property was appraised at £700,000, £100,000 less than the client’s initial estimate. The lender’s policy capped interest-only loans at 50% LTV for this case, limiting the maximum interest-only loan to £350,000. Given the client’s preference for an interest-only mortgage to maintain low monthly payments, we had to rethink our approach.
Innovative Financing Solution
We proposed utilising the equity in the BTL property to bridge the funding gap:
BTL Property Loan Adjustment: We increased the loan amount on the BTL property, which had existing equity, to cover the shortfall.
Second Residential Property Mortgage: We secured a manageable interest-only mortgage for the second residential property, balancing his monthly payments and overall debt load.
Results And Client Benefits
The restructuring was completed with the following outcomes:
- Ownership Transfer: Both the second residential and BTL properties were successfully transferred to our client’s name, removing any joint ownership complications.
- Interest-Only Mortgages: Both properties were placed on interest-only mortgages, ensuring low monthly payments and financial manageability.
- Sufficient Borrowing Amount: The required funds were raised across the two properties, meeting the client’s financial goals.
- Competitive Rates: We secured competitive mortgage rates, providing long-term cost efficiency.
- Swift Resolution: The entire mortgage agreement was secured within a week, providing a quick and satisfactory resolution to a potentially stressful situation.
Conclusion
Our proactive approach and strong lender relationships allowed us to navigate a complex property and financial restructuring for our client. Despite the challenges, including property valuation issues and initial lender reluctance, we achieved a solution that kept the client financially stable and satisfied with the outcomes. This case highlights the importance of tailored financial strategies and the value of industry connections in resolving intricate client needs. If you are going through a separation and are worried about your property and mortgage needs moving forward, please feel free to give our team a call. We are here to help.
