This week’s podcast is all about Mortgage Capacity Reports, with Craig Skelton and Michelle Costello.
What is a Mortgage Capacity Report?
A mortgage capacity report is used by a couple that are separating or divorcing, and they need that information to establish what their financial situation will be post separation. The report is often used by solicitors and the courts to drive decisions.
It’s about looking at each person’s capability to buy the other person out of the property, if one person is remaining there. Or, if they are potentially looking to purchase a new home, it’s an individual look at what they can borrow. The mortgage capacity report looks at what’s affordable and the maximum lending capacity.
Do I need a mortgage capacity report?
You can of course do it on your own – sifting through all the high street lenders using their affordability calculators to assess the maximum level of lending you can get in terms of affordability.
But it’s going to take you hours to do, and you’ve probably got enough on with daily life as well as separating. If you employ a qualified advisor to give that advice, it will save you a lot of time. Plus, you’ll end up with a professional document that you can take to court. It confirms your financial position both now and in the future.
Who completes the report?
It will be myself. You’d come to an appointment and we’ll take a look at your current situation. I’ll look at your current income information and your outgoings and from there, I’ll look at three of the top high street lenders for an affordability calculation.
This confirms where you’d stand with regards to a mortgage, how much you can borrow and what that’s actually going to cost you on a monthly basis. We then dive a little bit deeper and have a look at typical rates and the mortgage term. We factor in when you’re looking to retire to establish how long the mortgage can be. We cover a lot that you might not think about if you were to do this yourself.
That puts you in a position to understand where you are in negotiations with a solicitor and your soon to be ex-partner. It means you have a financial understanding of what your position is and how to get the best outcome moving forward.
It makes things a little bit easier by seeing what the future looks like at a time of uncertainty and stress. Your mental health will be under a lot of strain, and having somebody there that can calmly help you is worth its weight in gold.
What are some different scenarios that you’ve come across?
If there are no dependents involved, it’s quite straightforward. It’s a case of assessing your income and outgoings. But when there are children involved, both parents want to ensure that they’ve got the best for the child. So negotiation around maintenance payments becomes really important. One party is going to pay maintenance to the other, which will affect both parties’ income and their ability to finance any future mortgage.
So we need to establish what that means. Court ordered maintenance payments can play a different role to non-court ordered payments, as different lenders have unique requirements about this. Child benefit and child tax credit are also a factor.
It’s also common for couples to decide that one party is going to work full time, with the other working part time to manage childcare. But when you separate, will that change? Will the person that works part time need to increase their hours to full time, and what does that mean for childcare costs?
It’s a minefield for people that are looking to separate when there is a family to consider. It is so important to have that impartial person, the mortgage advisor, to take a step back with them and lay everything out and document all the details.
How is the process different to standard mortgage advice?
This is quite a niche market, obviously. But the process itself is very much the same as if I was going to actually put a mortgage in place for a client. We’re just literally stopping at the point of applying with a lender because the client isn’t ready yet.
When they are ready, a few weeks or months down the line, it’s that bit more simple. I’ve got the information I need already. So once the client has found a property we can pick things up where we left off and get that mortgage in place.
What happens if I can’t get a mortgage?
It can happen, we have occasionally found that a client has a capacity assessment of zero. In that situation, we’re here to help, supporting as an experienced qualified mortgage broker to give advice on how you improve your position for the future.
Circumstances where you are likely to be declined on a mortgage tends to be due to adverse credit, bankruptcy or County Court Judgements. Every lender is different in terms of how they look at that and how they will make an assessment.
If that’s a factor, we would advise that while a mortgage isn’t something we can look at today, there are specific lenders that would be able to accept you in six or twelve months’ time, depending on your circumstances.
Knowledge is power, so once you know the situation and your options, you’re in a position to do something about it.
What’s the process to obtain a Mortgage Capacity Report?
It depends where the request comes from. It can come direct from a solicitor, who will already have your personal information and detailed budgets plus confirmation of your income, financial commitments and debts. Sometimes that solicitor will forward that information on instruction from their client.
Or, it can come direct from a client. Then it’s about having that conversation about their budget, income, outgoings and what they foresee for the future.
Are there any other reasons why I should choose a professional for a Mortgage Capacity Assessment?
I’m completely impartial when it comes to advice and support. I’m giving the same information as I would do for anybody. It’s a black and white assessment – how much you can borrow and the monthly cost.
You always hope that a couple can separate amicably, but it’s not always the case, and the smallest of things can cause friction. So it can help for the other party to understand that a Mortgage Capacity Assessment has been instructed on an impartial basis and it’s been done with professionalism. The client hasn’t just decided themselves to look about the market and decide they can’t get a mortgage. The report has been done professionally, with the interest of both parties in mind.