Avoid a messy break-up on your joint mortgage

Splitting up the family home can be hell for couples who are going their separate ways, but ‘fresh start’ lending rules can help, writes Eithne Dunne.

It was not just weddings that were put on the long finger during the pandemic: the finalisations of divorces and separations were also stalled. “People had a lot of time to think about things during lockdown, and now they just want to get it done,” Niamh Moran, partner at Carmody Moran Solicitors, says.

Even outside Covid, separating couples often have to continue living together for some time while they finalise legal and financial matters. This can be hugely stressful, says Moran, who has had numerous Zoom meetings with people in their cars — the only place they could have a confidential conversation.

For those who manage to walk away from a marriage with no mortgage ties, things are looking up slightly when it comes to buying again. Proposals from Darragh O’Brien, the housing minister, due to come into force about now, will allow divorced or separated couples not tied to a mortgage to regain their first time buyer status. This means they would need a 10 per cent deposit to buy a new home when, previously, anyone in this position who wanted to buy again had to come up with a 20 per cent stake.

The new “fresh start” rules will also mean that divorced or separated buyers not tied to a first mortgage will have access to certain state schemes aimed at first-time buyers, including the affordable purchase scheme and the first home shared equity scheme.

Yet for joint mortgagees, accommodation looms large as one of the trickiest obstacles in many divorces.

Selling up

When a couple have no offspring or the children are grown up, they may be able simply to sell their home, split the proceeds and move on. Luckily, house prices are now such that they can often clear an outstanding mortgage with some cash left over.

Moran says it is generally feasible for both parties to rehouse themselves with small mortgages — in contrast with previous years when negative equity was a big problem.

“Couples who got married between 2000 and 2008 might have bought their house with a 100 per cent mortgage,” Patrick McGettigan, managing director at McGettigan Financial Planning, says.

“Negative equity meant that many of them literally couldn’t afford to carry that loss, so for a long time you had people living in the same home even though they were not together.”

According to Anne O’Neill, principal solicitor at Family Law Ireland, while selling up and starting afresh can work well for relatively young couples, anyone in their fifties or over will find it harder to get another mortgage.

She cites the example of a retired husband and wife who have a home worth about €350,000 — not enough to buy each of them another place. Luckily, however, they also have some properties abroad and a pension each, although the man’s is more valuable. “In this case, something has to give,” O’Neill says. “The woman may have to forfeit something that she would otherwise be entitled to in order to get enough to rehouse herself.”

Buying out

In situations when one partner wants to buy the other’s share in the home, they have to agree on a figure and then pay half of whatever equity is left beyond the mortgage. “For example, if the family home is worth €500,000 and there is €300,000 of a mortgage outstanding, assuming they are splitting on a 50-50 basis, the partner being bought out would get €100,000,” Moran says.

This usually goes hand in hand with having the bought-out partner’s name taken off the mortgage, though this requires the bank’s consent — which is no mean feat. Banks are reluctant to remove a name from a joint mortgage, given that they initially agreed to lend the money to two borrowers and often two incomes.

They are also restricted by Central Bank of Ireland rules as to how much they can lend to a single person.

By all accounts it is, in fact, extremely difficult to get a name taken off a mortgage. This is particularly true, it seems, for Ulster Bank and KBC, which are pulling out of the Irish market. And while the other banks may be slightly more amenable, the decision will be made on a case-by-case basis and lenders will be wary of putting the mortgage onto one pair of shoulders.

New mortgage

A bank may be more inclined to let a person just take out a new mortgage in their sole name — assuming they meet all the requirements for ability to repay, and so on. As Moran notes, you may even secure a better rate this way.

On the other hand, if your original mortgage was a tracker, you may be loath to give that up because you won’t get another one. In such cases, O’Neill says, it is sometimes possible to come to an agreement whereby one partner effectively takes over the mortgage and continues paying at the tracker rate without directly involving the bank.

Yet there are many people who just won’t be able to get a sole mortgage after a split. McGettigan, for example, had a client in a senior position who wanted to buy out her husband’s share of the family home. Even though she was on a very good salary, she was unable to get her bank to fund the purchase.

The exiting partner will have some equity in their back pocket, Moran says. “But you then have to take on another mortgage at a later stage in your life than you had intended, which is not easy.”

She says that many people in this situation will end up having to tailor their expectations. “Where you once had perhaps two incomes financing one house, those incomes now have to finance two houses,” she adds.

“That might mean you have to downsize in the same area, or consider an area you wouldn’t originally have chosen.”

Status quo

When children are involved, McGettigan says, the courts generally prefer to see a couple retain the family home — and the joint mortgage — until such time as the youngest child is 18 years old. After that they are free to sell the property and split the proceeds.

When a couple plan to sell once their youngest child reaches a certain age, there is often a clause that gives the partner living in the property first refusal on buying at market value.

In the interim, the parent who moves out may be left at the mercy of the roaring rental market. According to the Daft.ie rental price report for the fourth quarter of last year, the average monthly rent for a one-bed apartment in Dublin ranges from €1,277 to €1,738; in Cork, Galway and Limerick cities, meanwhile, the averages are €1,087, €1,026 and €959 respectively. The partner who leaves will often also have difficulty securing another mortgage. “First, they are down to one salary,” McGettigan says.

“Second, their repayment capacity is seriously hindered as they are still paying towards the original mortgage and possibly also paying maintenance. Third, they will be older, which reduces their repayment term. And finally, if still a joint owner, they don’t have first-time buyer status and therefore have to come up with a 20 per cent deposit.”

In McGettigan’s experience, a parent in this situation can normally secure another mortgage only if and when they meet a new partner who agrees to buy a place with them as joint applicants.

O’Neill has seen cases in which the parent who has moved out and is paying rent finds that they have little left to put towards maintenance. The parent who stayed in the family home with the children may then find it difficult to keep up the mortgage repayments, so they register as insolvent and are released from their debts.

But because both parties are responsible for the mortgage, the debt remains in the other partner’s name.

“This happens more often than you might think,” she says.