A Scottish divorce lawyer has warned of a substantial increase in the number of separating couples in dispute over who retains low-cost mortgage agreements as rising interest rates exert continuing pressure on household finances.
John Roberts, a partner at Austin Lafferty Solicitors in Glasgow, said he has also seen a 25% rise in the number of divorces where neither partner is deemed to have the income necessary to keep the mortgage on the family home in their sole name. While the decision on who retains a jointly-held property is governed by family law, affordability criteria set by the bank or building society that made the original mortgage loan when the house was purchased must also be satisfied.
There is nothing in law that gives one spouse priority over the other, with house finance one element among many such as pensions and savings that come into consideration when negotiating a fair division of assets and liabilities. However, the rising cost of borrowing money following 13 consecutive increases in interest rates by the Bank of England in its battle to bring down inflation has added a further layer of difficulty to an already complex calculation.
READ MORE: The rising cost of UK mortgage repayments explained
“The mortgage lender will frankly not care who ends up paying the outstanding account, though it may obstruct the parties’ intentions by not allowing one of the couple to take over the mortgage alone,” Mr Roberts said.
“If it was originally set up on the basis of the joint incomes of both husband and wife, then the bank may refuse to allow one to be removed from the mortgage and the property title. Indeed, this question should be asked and answered before any serious negotiation is commenced, and if the loan cannot be devolved to a single borrower, that may mean the house has to be sold and the mortgage repaid in full, leaving both spouses to find new sole mortgages and purchases, no doubt for lesser properties and at higher rates of interest.”
Millions of households have already seen their monthly mortgage costs soar by hundreds of pounds, and millions more are set to follow as existing fixed-rate deals of typically two or five years come to an end and must be re-negotiated at higher rates of interest. According to figures released in June by the Centre for Economics and Business Research, UK homeowners are set to spend nearly £9 billion more purely on rising interest rates throughout this year and into 2024.
John Roberts (Image: Austin Lafferty)In June the Bank of England lifted its base rate by half a percentage point to 5%, the highest it has been since September 2008. The base rate influences the amount charged by lenders to mortgage and credit card customers and these increases have pushed the average two-year fixed mortgage rate to a 15-year high of 6.8%, according to comparison website Uswitch.
Approximately 4.5 million fixed-rate mortgage holders have seen a hike in borrowing costs since rates started to rise in December 2021. Some four million more are set to do so between now and the end of 2026.
“The lesson is that separation may be unavoidable, but it will likely have unforeseen and certainly unwanted consequences,” Mr Roberts added. “Sorting out who gets the existing preferential mortgage deal is one of the major issues at present.”
READ MORE: Mortgage costs: More Scots falling behind on repayments
Earlier this week the debt charity StepChange Scotland reported an increase in the number of its clients who are behind on their mortgage payments, revealing the “tangible effect that rising interest rates are now having on clients’ debts”. It has called for government intervention at Scottish and UK level to assist struggling households with rising repayments.
During the second quarter of this year, 19% of StepChange clients in Scotland who had a mortgage were behind on those payments, up from 15% in the second quarter of 2022. The charity also reported a year-on-year rise in the proportion of its clients with mortgages, up from 13% to 15%.
