Buying a new home after divorce can be an important part of the healing process, providing you with a fresh start and enabling you to move on with your life.
However, it may also be an uphill struggle at a difficult time, and can prove a huge financial challenge if both you and your ex want to buy separate properties from the proceeds of the sale of your former marital home.
A number of Rest Less members have said that they are hoping to buy a home following divorce, and are wondering about how to go about this in their 50s and 60s.
Sadly, it’s an all too common scenario, with latest figures from the Office for National Statistics showing that the number of divorces increased by 18.4% to 107,599 in 2019. This is the sharpest increase for more than half a century, and in recent years the over-55s have seen some of the biggest rises in divorce rates.
Here, we talk you through what you need to know if you’re thinking of buying a property after divorce.
- What should you think about when buying a property following a divorce?
- What are your mortgage options?
- How do lenders treat maintenance payments?
- What documents will I need to provide when I apply for a mortgage?
- What if you still have a mortgage on your former marital home?
- What about additional costs?
- What about other living costs?
- Where to go for more help
What should you think about when buying a property following a divorce?
As a couple, you may have been able to afford your dream home, or at least one bigger than you could have bought as a single person, so you may be looking for a smaller, cheaper home.
As a result, you may need to adjust your requirements and expectations, although you may be happy with a smaller property that’s easier to manage, and is more affordable.
Yet it’s vital to find the right home for you. So, while searching to buy can be a tiring process, try to avoid buying a property because you’re exhausted or desperate to settle, which may particularly be the case if you’ve gone through a gruelling divorce.
Write a list of your property priorities, for example, do you want a bit of outside space, or to be in a particular location? You should also make a note of the things you might be prepared to compromise on, such as traffic noise or forgoing a garden if it gets you more internal space.
If you can’t find a home you want to buy, it’s wise to take a break, or even rent for a bit until your divorce is finalised, say, and you’re really ready to focus on the next stage. There will always be new properties coming onto the market, and buying is a long term commitment that you want to get right.
Check out our article on 11 Common Mistakes Homebuyers Make (and how to avoid them) for some tips.
Here are some considerations:
Location: Staying in the area you know can be comforting, particularly if you have friends and family around, or you may find you want to move away for a new start. But before doing so, consider whether it’s important to be close to schools, shops, and transport, and avoid making hasty decisions. If you buy in a new area, you might want to think about renting first to make sure you like it.
Size: Whether you buy a house or flat will depend on whether you have children with you, and the amount of maintenance you are prepared to undertake. If you don’t have children living with you, for example, you may be happy with a flat, but read the maintenance agreement carefully and check for restrictions on pets if you have any. Another option is an apartment in a big converted house, which may have shared communal areas and facilities to make meeting other friends and neighbours easier after a break up.
Leasehold or freehold: If you’re moving from a family home, you may have been used to living in a freehold property, so you essentially own the property and the land it’s built on until you come to sell. However, if you’re buying a leasehold property (and many flats are leasehold) you own it for a particular period of time, which is the length of the lease.
Do your homework before buying a leasehold property, as it’s vital to check the charges you face, such as ground rent, service charges and admin fees. These can rack up over the years, and prove a nasty shock if you’re not used to paying them.
Learn more about the potential pitfalls of buying a leasehold property in our article Buying leasehold property: How to avoid the pitfalls.
Saleability: Don’t rush into a decision because you need to move. Buying a property should be a carefully thought out process, and one which includes thinking into the future – for when you might want to sell it. You want a property that will appeal to buyers, rather than a home that may be a struggle to sell, for whatever reason. So, think about noise, neighbours, parking options, and how long the property has been on the market.
What are your mortgage options?
It’s a big financial commitment to buy a home on your own at any stage of life, and post divorce you may even be stepping onto the property ladder for the first time.
You can borrow for a house purchase into your 50s and beyond, with various options these days for affordable mortgages that stretch into retirement. However, bear in mind that different lenders come with different criteria, and mortgage age limits. Find out more in our article Mortgages for over 50s: What you need to know.
Many lenders will impose a maximum age at the end of the mortgage term on a standard deal. That will typically mean the mortgage must be repaid by age 70 or 75. However, some lenders are more flexible than others and may consider lending for longer, and a growing number of specialist mortgages are available to older homeowners. If you’re in your 60s and want to know more about your mortgage options, read our article Mortgages for over 60s: what you need to know.
Fortunately, the age at which lenders may refuse to lend based on your age has been pushed back over recent years. Plenty of lenders have extended the maximum age you can be at the end of your mortgage term, particularly if you’ll be working beyond State Pension age.
Speaking to a mortgage broker is the best way to clarify your options but, for example, Halifax will take your earned income into consideration until you reach age 70. However, your mortgage term must end by the time you reach the age of 80, but if you’re taking a mortgage out at age 55, this still gives you a typical 25-year term.
Meanwhile, some specialist lenders such as Hodge Lifetime have developed specific options for over 55s and may consider lending until age 95 where appropriate. Family Building Society may also lend up to age 95, depending on your situation.
You may also want to consider a retirement interest-only (RIO) mortgage, which are specialist mortgages aimed at those in their 50s and 60s. As their name suggests, you only pay the interest on the mortgage, and the loan is only paid back when you die or move out.
Teddy Cenaj, mortgages expert at Rest Less Mortgages, says: “When you are looking at buying a property in your 50’s you have a few options available to you, such a standard mortgage, a retirement interest-only mortgage, and equity release.
“A standard mortgage will allow you to pay down the mortgage, though this will generally mean a shorter term and therefore could have a fairly large monthly payment. With a retirement interest-only mortgage you are only paying the interest, so the monthly payment will naturally be lower. They are a type of lifetime mortgage, so you do not have an end date when the capital has to be repaid.
With equity release, again there is no end term, and on top of that you do not have to make any monthly payments if you do not want to. However, this will mean that the monthly interest will be added onto the mortgage and this will eat away at your equity.”
Find out more about RIO mortgages in our article How retirement interest-only mortgages work.
Remember that lenders will assess your affordability, no matter your age when applying for a mortgage. This will take into account a variety of factors, including your income and outgoings, and any potential drop in income from reducing hours or retiring. However, don’t assume that maintenance payments from an ex-spouse will count towards income (see more below).
Lenders basically want to ensure there is sufficient income, after any regular payments, to meet mortgage repayments. You’ll also want to check you have the best deal available for you, and that you’ve factored in the additional fees and costs involved in taking out a mortgage. You can find out more about these in our article Mortgage fees and costs explained.
How do lenders treat maintenance payments?
Beware that lenders take varied approaches to using maintenance payments in their affordability calculation.
Some lenders won’t include maintenance payments at all, while others take a proportion of the payments into account subject to proof of the payments. However, the lender will also need to be able to see some proof of the payments, and that may need that to be by court order.
Some lenders can be more flexible in what they require. For example, Nationwide will want to see a copy of the formal maintenance agreement, court order or written private agreement, along with evidence of three months’ worth of payment. If you’re only just in the process of getting divorced, this could pose an issue.
Many lenders will also look at the longevity of the payments. Given that maintenance payments are typically to support children, and may only run until they leave home, this will also affect your mortgage options.
What documents will I need to provide when I apply for a mortgage?
Just like taking out a mortgage at any stage of life, the lender will need proof that you can afford repayments.
Teddy Cenaj says: “The main documents you will need to have ready when applying for a mortgage which goes past your retirement age are pension projections, either from your pension provider or an independent financial adviser – they need to confirm the current pension fund value and yield. On top of this, you should have your last three months’ bank statements to hand, alongside proof of ID, address and current income as well.”
If you’re already retired or approaching retirement, lenders will most likely check your pension savings and potential income (or income already received) as part of their affordability assessment. Your income may include a private or company pension forecast, State Pension Statement, annuity statement, and any income from employment or self-employment. Bear in mind that these documents will need to be dated within the last 18 months to be considered as part of your application.
If you’re working you’ll ideally have been employed for several years with a stable salary. If you’re self-employed, you’ll need around three years’ worth of income tax returns to prove a regular income to a prospective mortgage lender.
Showing lenders that you have a stable financial history and income is part of qualifying for a competitive mortgage rate under ‘affordability’ checks. Read more in our article How can older mortgage borrowers prove their income?
What if you still have a mortgage on your former marital home?
If following divorce, your former partner plans to live in the property you both owned, this may cause you problems when you try and buy a new home if your name is still on the mortgage paperwork.
Your overall level of debt, and any mortgages you have will show up on your credit report and form part of a lender’s assessment for a new mortgage. Also, although hopefully an unlikely scenario, if one person files for bankruptcy while their name is on a joint mortgage, this may force the sale of the home to pay back creditors. It’s therefore vital to try to separate your finances from your former partner as soon as possible. You can find out how to go about this in our guide to Sorting out your finances when a relationship ends.
What about additional costs?
Remember that buying a home isn’t just about being able to afford the upfront cost. You’ll need to factor in other fees, including stamp duty, survey and solicitor costs, alongside paying for removals, and any new furniture you may need.
Stamp duty in particular can be a hefty cost. Find out more about the tax rates on buying property in our article Stamp Duty Explained. You can also use the Stamp Duty calculator on the Gov.uk website to find out how much you’ll need to pay.
Additional buying costs can quickly add up, so do your sums carefully, particularly if it’s a difficult and emotional time. It may also be a time when finances are tight, but bear in mind that you could regret opting for the cheapest survey. Ask around and get recommendations for surveyors and solicitors from friends, and avoid making a rushed decision. Remember, this is a major financial commitment but, most importantly, it’s your new home.
What about other living costs?
Flying solo means that household bills may increase, as previously you may have split these with your former partner. Make sure you can afford the bills you will face before buying a new property, including energy, water, and council tax. Remember you can get a council tax discount as a single householder, which can amount to a serious saving over time.You can find out if you’re eligible and apply for a council tax reduction here.
Other regular bills may be reduced by shopping around and making sure you’re on the most competitive deals possible. For example, you can compare energy deals using this energy comparison tool, and broadband packages using the broadband and TV comparison tool. Find out more in our guide Seven ways to save on your household bills.
If your costs are likely to leave you very financially stretched, you’ll need to work out whether you might need to make cutbacks elsewhere. Our guide How to save money – 17 money saving tips has plenty of tips that may help.
If your survey on your new property picked up any issues that you haven’t managed to negotiate fixing before exchange of contracts, you will also need to factor in maintenance costs for dealing with these.
Where to go for more help
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for somewhere to start, you can speak to a Rest Less Mortgages advisor and get high quality advice on residential, retirement interest-only, equity release and buy-to-let mortgages.