Paying for the changed living arrangements that follow separation and divorce is a key issue in most cases we deal with. When you divorce, what was a shared household splits in two with all the knock-on financial consequences that brings. Discussions often become fraught with questions being asked about what share of financial responsibility each spouse should bear to house the family.
One way to take the heat out of such discussions is to commission a Mortgage Capacity Report (or a Mortgage Capacity Assessment). This is an independent assessment of the borrowing power of each party. Once financial capacity has been established, a more practical approach can be taken in relation to new housing arrangements – whether one spouse intends to remain in the family home, or a new property needs to be purchased.
Who prepares a Mortgage Capacity Report?
Unlike your obligation to disclose your assets on Form E, a Mortgage Capacity Report is not a requirement in family proceedings. Usually, one spouse’s solicitor will suggest obtaining a report from a financial or mortgage advisor where the circumstances of the case merit it.
The report can be carried out in respect of one spouse or both, and what’s known as a ‘No Mortgage Capacity Report’ can also be created to confirm that one party would be unable to secure any kind of lending. When requesting a report, it’s important to brief the advisor carefully. Often the report will run through a number of different scenarios, factoring in future changes in financial commitments, including the possibility that earnings will increase or child maintenance costs will reduce. When the report is produced it will normally be shared between both sets of solicitors to facilitate further discussion on a financial settlement.
What does a Mortgage Capacity Report Cover?
Reports will always depend on the facts of a particular case. Most reports should include details of:
- Income – An assessment of the future borrower’s current sources of income, such as salary, self-employment income, rental income, or investments.
- Debts – The report will analyse the borrower’s existing debt obligations to determine the borrower’s debt-to-income ratio (DTI).
- Credit History – A borrower’s credit score and credit history will be obtained to assess how much credit a borrower can comfortably take on.
- Deposit – The report will factor in how much of a deposit will be paid in any purchase and assess how that impacts the amount a party can borrow.
- Monthly Expenses: The borrower’s monthly expenses, including utilities, insurance, and council tax will all be factored into the analysis
The report will conclude with a statement of how much a spouse (or both spouses if it’s a joint report) can afford to borrow.
The primary goal of a mortgage capacity report for divorce is to provide clarity and transparency regarding each spouse’s ability to secure suitable housing and manage mortgage related financial responsibilities after their divorce. This information can be valuable for negotiating property division, spousal support, and other financial aspects of the divorce settlement. If negotiation fails the independently produced report can be used as a reliable reference point in court proceedings.