How to get a mortgage on maintenance

Divorce rates shoot up in a recession, unfortunately, leading to the question, can you get a mortgage if your only income is maintenance from your former partner?

My niece's question

One of the unfortunate side effects that the stress of recession places on families is that marriages fly apart and the incidence of divorce rises. Sadly my niece is going through the trauma. ‘It is reasonably amicable and we have agreed to sell the house, which is worth about £850,000,’ she explained. ‘I will have around £250,000 cash to buy another home but something suitable is going to cost around £400,000 to £500,000.’ 

Luckily, her husband works in the City and is well paid and they have agreed on maintenance of £4,000 a month or £48,000 a year. There are two young children under the age of five so she doesn’t want to work just yet. ‘But can I get a mortgage if my only income is maintenance?’ she wanted to know.

‘Yes – it is possible,’ confirmed Ray Boulger of mortgage broker John Charcol. He said that Yorkshire Building Society and its broker arm Accord are the main lenders in this market and clearly there isn’t as much choice of mortgage as if you were earning. ‘But Yorkshire’s products are very competitive and they offer a wide range including a  five-year fix at 3.99% on a loan to value of up to 75%.  They have other products with loans to value up to 85% and 90% and these will all be available to applicants on maintenance.’

Even better Boulger points out that as maintenance payments are tax free in the hands of the recipient. ‘YBS will even gross up the income when assessing affordability.’ 

This means that my niece’s maintenance of £48,000 a year will be treated as though it is at least £60,000, possibly more because £4,000 would be subject to 40% tax if this were earnings. She should, therefore, be able to afford a mortgage of £150,000 to £200,000 which will allow her to buy a home in the £400,000 to £450,000 price range.

‘There are other lenders prepared to take on this business such as Cheltenham & Gloucester and Northern Rock who will offer mortgages up to 75% loan to value, but a lot won’t go beyond 50%,’ Boulger warned. ‘But the beauty of YBS loans is that they don’t require a court order and will accept confirmation of the maintenance agreement from the solicitor.’

Making it legal

With the vast majority of divorce settlements being agreed without going to court, is registering a maintenance order with the courts expensive? ‘No,’ said Nigel Shepherd, a member of Resolution and a family law partner at solicitors Mills & Reeve, one of the largest family law practices with six offices in major cities around the country.

‘Maintenance can be paid voluntarily or it can be incorporated in a court order and we recommend that it is paid under a court order as it is then enforceable and much more secure for the partner receiving the money. The majority of lenders prepared to lend on maintenance payment will want to see a court order,’ he confirmed.

So if you are looking for a mortgage and maintenance is your only income, does the borrower need to have been in receipt of maintenance payments for some time to establish that the payer has a good track record? ‘Not necessarily,’ said David Hollingworth of fee-free mortgage broker London & Country. ‘Lenders like Yorkshire building society are very good and they don’t insist on a long track record of payment. They might ask to see some bank statements to prove that the money is being paid,’ he says.

Hollingworth pointed out that other lenders could be much tougher. ‘Halifax, for example, wants to see a court order and some treat it as secondary income, a bit like bonus payments. They will only take into account 60% of the maintenance payments and will want to see at least six months track record of the payments being made,’ he warned.

Impact of the property market

Shepherd added that at the higher end, big money cases people have been putting off divorce – not least of all because of the drop in property values. ‘If you are the person who is looking to be paid out, you are not going to do well at the bottom of the market,’ he said.