Divorcing couples rowing mortgage rates

A leading family lawyer has warned that more divorcing couples are arguing about who gets to retain the more advantageous mortgage rate as monthly home payments continue to soar.

Philip Barnsley, Head of Family at West Midlands firm Higgs LLP, said lower mortgages are rapidly becoming a valuable asset in the negotiations between couples who are splitting because tens of thousands of pounds could depend on the settlement.

He warned if couples have had a fixed sub-2% mortgage rate over the past couple of years, the person losing out could be seriously disadvantaged if they have to find a new mortgage for their existing home or a new property at the newer, higher rates.

“Over the last five or six months we have seen a growing trend of divorcing couples placing greater importance on who gets to retain the more advantageous mortgage rate given the recent rises,” he said.

“There can clearly be a significant financial difference between a sub-2% mortgage couples may have locked in on a fixed deal a few years ago and the current rates.”

He said while each case that his team is dealing with is different, the rows over the cheaper mortgages could become acrimonious.

In recent months, Philip has had two cases where the couple decided to delay the sale or transfer of their property to avoid further delays and expense to their divorce proceedings. This move also meant they avoided early redemption penalties.

“The general rule is that whoever gets the benefit of the lower interest rate on the mortgage will end up having to make a concession elsewhere in the settlement,” he said.

“For instance, if a husband is retaining the mortgage rate of 1.8% and the wife is having to buy a new house with a 5% rate, that husband may have to make concessions in terms of either the amount of capital or income that the wife needs in order to offset that difference. It’s all swings and roundabouts.”

Philip said he had this week advised a client who had seven years left on a 10-year fixed rate mortgage at 2.4%.

The client wanted advice on his options and one of those discussed was around a structure whereby his wife would retain all the equity in the family home in order to buy another house mortgage free, while he kept the low-rate mortgage on a new property – plus his shares in a family business.

Based on borrowing of £200,000 at 2.4% against the same at 6.5%, the difference would be around £440 pcm, which would total a benefit to that client of around £37,000 over the seven years remaining on the term.

Philip said divorcing couples should be mindful of the shelf life for any benefit secured from retaining a low mortgage rate.

“Most people will be on two or three-year fixed rate and that will come to an end in the relatively near future so this has to be thought about as part of any settlement,” he explained. “It’s only really when you get to people on a five or 10-year fixed rate deal where there is true long-term value in retaining a low interest rate mortgage.

“Getting good quality legal and financial advice really is crucial at the moment to avoid falling into some of these traps.”

Average mortgage rates recently hit 6 per cent. The average rate for a two-year fixed-rate mortgage is now 6.15 per cent, while the average five-year fix is 5.79 per cent, according to the data provider Moneyfacts.

For more information visit www.higgsllp.co.uk