Mortgages and Divorce

In this episode, Tamsin interviews mortgage expert Daniel Bell about all things mortgage related. How do you work out how much you can borrow, what can you then spend on a property, what do you need to take into account.

Director of Financial Planning and Chartered Financial Planner Tamsin Caine has a strong background of over 15 years within the financial services profession. She began Smart Divorce following her own experience with divorce; she now advises people in the same situation as she once was, enabling them to take back control of their life and finances. Smart Divorce website is www.smartdivorce.co.uk. Contact her by email tamsin@smartdivorce.co.uk.

Daniel Bell is a mortgage broker at Bell Financial Solutions based in Altrincham, South Manchester. Trusted by clients across the Northwest he can help you achieve your financial goals  and find the most suitable financial solutions for you based on your circumstances.

Daniel is proud to provide clients across South Manchester and beyond with comprehensive and well-explained, financial mortgage advice, suited to their needs.

By searching lenders right across the mortgage market, he can find a mortgage suited to your needs and provide a wealth of expertise & knowledge throughout your personal finance journey.

You can contact Daniel at office@bellfinancialsolutions.co.uk or by calling 0161 791 4757.

Transcript

Tamsin
Hello, and welcome to the Smart Divorce podcast. This podcast is for you if you're thinking of separating already separated or going through divorce. My name is Tamsin Caine and I am a Chartered Financial Planner. We'll speak to some fantastic specialists who can help you to get through your divorce hopefully amicably and start your new chapter positively. Now over to today's guest

Tamsin
I'm delighted to be joined today by Daniel Bell. Daniel set up Bell Financial Solutions in 2019, having previously worked in a mortgage advice practice up the road in Sale. Daniel, welcome!

Daniel
Hello!

Tamsin
So we're gonna to talk today about mortgages, specifically, because in divorce a lot of people are concerned about whether they're going to be able to keep their own house, whether they're going to be able to move, how much they might be able to borrow, how maintenance payments affect things. So we're going to cover as much of that as possible today. So do you want to start off by explaining what a mortgage is?

Daniel
Of course. So a mortgage, in simple terms is a big loan secured against the property. And when we say secured, what we mean is that the lender that issues the mortgage, the big loan, has an interest in the property. So in that sense, that means that if the person that takes out the mortgage was to stop paying the mortgage for any reason, the mortgage lender has a right to take the property from them - so what we call repossess - but in simple terms, it is a big loan. That's all it is, it's nothing more scary than that. It's just a big loan secured against the property.

Tamsin
Brilliant. So you don't wanna be stopping paying your mortgage because you're in danger of losing your house if you do that.

Daniel
Absolutely no, your mortgage should always be your number one priority. That's what keeps your roof over your head. That's what we would call, you know, your priority bill. Number one should always be to pay the mortgage.

Tamsin
Totally agree. So I suppose the first thing that our listeners might be concerned about is is how much they might be able to borrow? How much might they be able to secure against the house and how do lenders go about working that out?

Daniel
There's no fast and hard rule of thumb on how lenders do... Previously there were the days that lenders would just take an applicant's word on how much they earn and lend unlimited amounts of money. And unfortunately, that's what led to part of the banking crisis a number of years ago. However, following that, lenders now assess applications in a different way. Every lender looks at different types of ways of assessing income. And every lender therefore takes into account different types of income, different income streams, and whether that be employed income, self-employed income, maintenance, benefits, etc. And they all assess it in different ways. They all take different proportions of each type of income. And they all look at different figures when it comes to self-employed, etc. So there's no simple answer. Every lender is different. And that's why it's very important that you always make sure that you're speaking to a independent whole of market broker, as opposed to just going to see your bank because your bank can only offer what they assess income based on and that doesn't necessarily mean that you're not going to be able to get a different amount of mortgage amount with another lender.

Tamsin
Okay, so all lenders will start off by looking at your income, I guess. And then they might put a different slant on how how much they'll lend you based on that income. Is that right?

Daniel
Yes. So... but every lender has their own risk area and niche area. So, different lenders will have an appetite for different type of lending. So there will be lenders that will just want to lend to simple employed people. And then there'll be lenders that will be happy to lend to those that might have a different, more complex type of income, whether that be self-employed, or whether that be those that might not have high level of employed income, but that might be more reliant on income from different streams. So from potentially a maintenance point of view or a benefit point of view. So different lenders have their own commercial background in what they want to lend on, and they will assess it accordingly based on that.

Tamsin
Okay, and what about outgoings that you you might have? Do they impact on how much lenders would be prepared to lend to you?

Daniel
Absolutely. And again, every lender assesses outgoings in a different way. So you can have one lender that will take into account, say, pension deductions from a payslip. Then another lender that won't, and you can have one lender that will take into account child care and another lender that won't. So, some lenders will use statistics from the Office of National Statistics to give themselves a general idea of what they feel is a set amount of expenditure. And lenders will view dependence in different ways. So certain lenders will see dependence way more heavily as an expenditure than others. So, again, there's no hard and fast rule on how expenditure is assessed. Every lender assesses this in different ways, and that's where the knowledge and the experience of a mortgage broker, an independent mortgage broker comes into their absolute own because they have that knowledge and experience to go "right, based on what we can see here and see that you've got this, this and this, that's the type of lender  we would avoid, because they wouldn't give you the most money or they wouldn't be able to offer you this. However, if we went to this lender over here, they wouldn't have a problem because actually, they don't take into account this and actually, they're more willing to look at that and they take that type of income into account more heavily.

Tamsin
Okay, so I guess what we're saying is, it's important that if somebody contacts you that they provide you with as much information as possible and as accurate information as possible.

Daniel
Indeed, and as part of the initial sort of meetings that we will do, we'll go through a fact finding process and it can be a little tedious, but it gives us the best place to then be able to offer the best advice. And, you know, I laugh and joke with my clients that as part of that fact finding, I'm gonna ask them a lot, I'm gonna ask them their blood type, their shoe size, etc. I'm not really... I'm gonna take quite a bit of information from them up front. But by taking that information up front, I can then decide: right, I know that that lender doesn't ask that, or that that lender actually is happy with that. It puts me in the best place to then do the research that I need to do to make sure that I can find the right lender for that client because every lender is different. And so yes, it's an investment, spending that initial time getting to know each other but actually getting all that tedious information upfront. And because then we can obviously invest to make sure that we are going to the right lender accordingly.

Tamsin
Okay, so if I contact you today and say: "Right, Daniel, I need a mortgage" you will arrange a meeting with me and complete the fact find is that the first stage?

Daniel
It is and I like to tailor the way I work with clients based on their needs. Every client is different. I mean finances and money is sensitive, and some clients find it easy to talk about money, some find it difficult. There's clients that have never ever had to deal with a mortgage or money. There's those that are very savvy and have and that's fine. And you know, I will therefore tailor you know, the way that we have to work together accordingly. And there's an initial skeleton approach, which would be that we would meet up, get to know each other informal find out a little bit about me, find out a little bit about them. Yes, go through the fact finding process. But as part of that, you know, get those soft facts, find out more about the situation. And then from there, we can then come up with a plan of what we want to do. If a client wants to see me seven or eight times, before we even decide what we're going to do with regards to a mortgage, that's fine. If a client only wants to see me once and then tells me, right, I want to sign up to see a mortgage. Again, that's fine. Every clients different and that... we need to tailor that accordingly. Because, you know, money is... it's different for everyone. And we have to appreciate that. But you can't put everyone in a square box. It doesn't work and it's not fair. I don't feel that's the right thing to do.

Tamsin
No, that sounds like, certainly sounds like a good plan. And, and after... So you go through a process of fact finding. You will then do some research on a lender that might be appropriate. And I assume that some of that doesn't take place until the potential client has found a property. Is that right?

Daniel  
Yes. So as part of say, the fact finding process we find out what the client is looking to do, and then I will explore options for the client even during that meeting, or maybe follow it up if I need to go and do a little more research. And then we don't necessarily get into the nitty gritty of the exact lender, the exact interest rates, etc. at that point, until they do find a property. They don't... we don't need to bombard each other with all that necessary.. pieces of information until the property is found. If we're buying your property that is, of course with a mortgage, you could be looking at your existing arrangements, whether that be looking to refinance or your finances on a property you already own. And whether that might be looking to buy someone out, take someone off a mortgage, restructure debt. But yes, I will, as part of my fact finding then look at what lenders are available. I might have an idea of what lender isn't and isn't available. And I'll do.. I'll disclose that accordingly. But I generally find that clients aren't necessarily interested in "what lender am I going with?" They want to know, can I get what I want? Can I achieve what I want? And how do we achieve it.

Tamsin
That sounds fairly sensible. So once, once they've found the property, and you've found a suitable mortgage for them, then what happens next?

Daniel  
So that's when we do get into the nitty gritty upright. This is the lenders that we're looking at. And this is where I start to make formal recommendations. So, I am in a position that I can make recommendations, I can't give advice, you'll find that there's a lot of mortgage advisors, although they can call themselves mortgage advisors, those that work in banks and building societies or even in some estate agents, they're not able to give advice, they can only give you information. So they'll say, here's all the different types of mortgages, which one do you want? I'm different, I can give you advice. So I'll say, right. Here's what I found as part of that fact finding. And this is the lender that I think we should go with because of A, B and C. Doesn't mean that we necessarily have to agree if there's a... if I've got to change choice of different lenders and we want to go with one over the others that's fine. That's when I'll start to explain any fees associated with the mortgage, and how the mortgage is going to work, how it's going to look like in the first maybe couple of years if we're going to agree a set deal, and really explain how that mortgage itself is going to work from that day onwards, the day B, the day the mortgage starts, but which won't be the day of course, when we're doing the application. And the client then needs to be fully understanding of what I've said, and I want to make sure as part of that meeting, that the client does understand what they're taking on. Because at the end of the day, a mortgage is probably going to be the biggest commitment that you will ever take on. And as part of that, there's then obviously a whole host of other processes evolved regarding solicitors, estate agents, etc. If you're buying a property, what I think is great is when someone comes to buy a property, because there are so many different third parties involved and processes involved. I like to look after everything for my clients, because that can be very overwhelming. So as part of doing that initial, right, this is the mortgage that we're going to agree. This is what's going to happen next. But actually, I'm going to be looking after everything that is going to happen next. And I'll explain to you as we go along what is happening, but you're not going to have to do X, Y and Z because I'll be doing it for you. Unless I need you to sign A, B and C which I will tell you. Some clients want that some clients don't and again, that's where we tailor it accordingly. So if a client wants me to hold their hand the whole way through, I'm happy to do that. If a client wants a more hands on approach themselves, again, I'm happy to step back. But I think clients really appreciate that. And that's where I can really build my relationship with them by working with them right through to the end, right through to completion, and helping them understand everything that is happening throughout the whole process. Because of course, getting a mortgage can be difficult. But actually getting into a property can be even more difficult because there's so many other stages involved. And therefore, I want to help doing that the whole way through.

Tamsin
Absolutely, especially if somebody's never been through this before. I think having somebody there who can spend their time talking to estate agents, talking to solicitors, chasing people up, finding wherever it ends up to is really invaluable, isn't it, especially if you're, you know, busy either working or looking after children or both.

Daniel  
Indeed, I mean, it can be very daunting. What you'll find is that estate agents and solicitors and you know, we can use jargon, and they can all use different words for the same thing. And it can become very overwhelming. And that's where I come in and just sort of, you know, break it down without patronizing and explain actually, all this means is this, this is what we're going to do. And again, you know, people can be put into a lot of pressure when, you know, an estate agent's asking for this, solicitor's chasing you for this, mortgage lender wants this. But actually, if I'm there to sort of take that away from the client, and almost protect them, then I think that's where clients really see the added value of using using me as a mortgage broker, but not just a mortgage broker but actually, the whole package that comes with the relationship I can build with it.

Tamsin
And I totally agree. So, obviously buying a house is hopefully going to be a lovely smooth process from day one to the day that the keys are picked up for the new property. But that's not always the case. What are some of the pitfalls that people might experience?

Daniel
Several different ones. And, of course, I couldn't list them all but typical, I am... unfortunately in England and Wales.. I am, you can be gazumped. Gazumped means that you can make an offer on a property, you can be accepted. And someone else could still come in and make a higher offer than you at any point up until you actually get the keys to a property and that can then be sold to someone else. That can be very upsetting and can cause a lot of headaches to people and mortgages can get declined. And I'll never, I'll never promise something that is out of my control. And what I always do say is, because I take all that information up front, I always ask clients to be 100% honest, and never be ashamed, never be embarrassed. I'm not here to judge, people come here because they want my advice. And that's great. And I appreciate and respect that. But there are still occasions that mortgages can get declined. But that's where, again, I'll come in to my own because I'll find out the reasons that mortgages are declined. And then when we go back to the market, I can then speak to the mortgage lenders up front, I can speak to the underwriting teams, and say... and decide right, they're not going to accept that because I know that we were declined by first lender because of this. Second lender and third lender would also probably decline for the same reason. Therefore, I need to go with this lender instead. There can be issues with the property. So a mortgage is a two stage process. In order to have a mortgage agreed, people or person applying for a mortgage has to be approved, but the property itself also has to be approved by the mortgage lender. And that's because as I explained at the beginning, the mortgage lender takes an interest in the property. So they need to know that if you stop paying the mortgage for any reason, they can get their money back. So while the people applying for the mortgage may get approved, when the bank sends out their valuer it to the property number one it might not value up. So what that means is, it might not.. the valuer might not agree that it's worth the price you're paying for it and that would then cause us a couple of issues, there's options available, and we'd go through them at the time, or the valuer of might say that there's something wrong with the property or it's not acceptable security. Two parts there: he or she might say there's something wrong with the property, in which case, we could still do something. And depending on the level of what's wrong with it, or he and she might say: "it's not acceptable security at all" and what in effect, they're saying is there that it's not a mortgageble property. Some properties you cannot get mortgages on. And there's various reasons for that as well. And then, of course, through once the mortgage is approved, there's a legal process and legal problems can be picked up by the solicitor, but that's why you employ a solicitor because you want to make sure that the property you are buying is legally sound. But your solicitor can find reasons why again, it's not advisable to buy that property. That's for the list of some of the common pitfalls that can be picked up upon, but of course, there are many more. I think the key thing is again, being there looking after the claim, if we've come across those problems, we'll deal with them. We'll explain what they are. Sometimes we can resolve them with different lenders or speaking estate agent, renegotiating, etc. And other times we can't, or we have to walk away from the property and we'll go elsewhere. But it's all about making sure that you're getting the right advice from the right person. And if I'm there from start to finish, then that's why they're going to get that added benefit of being able to know actually, what can we do about this, if anything?

Tamsin
Yeah, no, absolutely. So you mentioned before that some properties are un-mortgageable. Are there things, if you're out looking for a property this weekend, are the things that you should particularly avoid if you want to take a mortgage out on a property.

Daniel  
Biggest thing at the moment is in relation to apartments. Unfortunately, a couple of years ago, we had the tragedy of Grenfell. And as a result, all apartment blocks in the UK are having to be reassessed and to make sure that they're reaching new fire regulations. You'll find that an awful lot of them either haven't been assessed yet, or aren't meeting regulations. And that will make them un-mortgageable and in terms of other properties to look at, you'll generally see on... if you're looking on the website portals that sell properties, so your common ones being On the Market, Zoomla, Rightmove. If there's a reason that you can't get a mortgage on the property, they will usually say something like investors only or cash buyers only. And that will mean there's a reason you can't get a mortgage on it. And for whatever reason, estate agents when you look to make an offer or to make interest, they will ask you how you're looking to purchase the property. If you say a mortgage and they know that it can't get a mortgage, they will tell you. They don't obviously want to waste their own time etc. and there's no hard and fast rule on what to potentially look for. Apart from the biggest one at the moment being those apartments and obviously estate agents making it clear from the outset which you generally see when you're looking at the description, so do always have a look at the descriptions. Don't just concentrate on the pictures. Auction properties. Certainly one that you should... you can't get mortgages on. You can in a very small number of instances but as a real general rule of thumb 99% of properties, you can't get a mortgage on auction. So they offer cash buyers only. It really is sort of Rightmove,  Zoopla and On the Market that you need to be concentrating on.

Tamsin
Okay, that's good advice. So in terms of looking at budgeting for what your mortgage is going to cost, I'm sure you go through all of this at your meeting when somebody arranges a mortgage or even at the point where, where they're starting to talk to you about how much they're going to look to borrow. But other than the cost of the mortgage each month, the other... are there other things that people should be aware of.

Daniel  
Absolutely. So my role is actually a mortgage protection advisor. So when you take out a mortgage, I will obviously recommend the mortgage. But I also have a moral and legal responsibility that if I recommend a mortgage to you, I have to recommend that you protect that mortgage. So my job is obviously to help you find a property and help you purchase that property. But it's also to make sure that I keep you in that property. And what I mean by that is: there are life events that can happen over our lifetimes, that could put us in a vulnerable position where we're unable to pay our mortgage and that puts our home at risk, as I said before, with the lenders having an interested in the property. Protecting the mortgage, there are various different types of protection policies that you can have to protect a mortgage. But what I'm saying is that there always should be a budget for that. And that's to protect against a common - unfortunately common - instances that can happen, ill health and the passing of people that may be on that mortgage, protecting the home for dependents or children. And, of course, actually the property itself so you've got your buildings and your contents insurance, if you're buying an apartment, there will always be an added cost. And there's something called service charge. That's the cost of the responsibility of the actual building itself, or the communal areas etc. And so that's an added cost that needs to be thought of, but I really would want to finish on: you cannot underestimate the need to protect your mortgage. Again, it's the biggest commitment you're ever going to take on. It's your home. And, you know, we all protect our mobile phones, our pets, all that. There's no reason we wouldn't protect ourselves. By doing that we need to protect our homes. And again, when we go for a mortgage, we would always go through the different types of protection policies that are available. And that is an additional cost in relation to the mortgage itself.

Tamsin
Okay, as we are focusing on divorce today, can you just run through how maintenance might affect your mortgage in terms of the ability to borrow. Either being in receipt of maintenance or paying out maintenance.

Daniel  
So starting with being in receipt of maintenance: different lenders again, view it in different ways, so depending how that maintenance is going to be received. If the maintenance is going to be received on a monthly basis and is court ordered, then generally a lender will take that income into account from day one of receiving it on a 100% basis. So just as they would treat a salary. If the maintenance is agreed on a informal arrangement, there are lenders that would take it into account, but generally they would have need to have  seen it being paid for a period. And currently that period would be a minimum of three months, ideally six months. In terms of maintenance being paid in other ways: it's more complex, and I believe there's now reasons that maintenance can be paid up front. Unfortunately Due to the nature of how this would sit in a bank account as opposed to being paid on a monthly basis, this isn't something that lenders are able to consider currently. However, as it becomes more common, it's something that hopefully, the industry might look to change in the future. But at present, it's not something that lenders are looking to take into account. In terms of it, maintenance as an expense, all lenders will take maintenance as an expense and whether that be on a formal or informal arrangement, if maintenance is being paid out, that would be treated as an expense. And the difference however being if the children are therefore not living with said person that then they are under dependent. So actually it can have its swings and round abouts. So, again, affordability can be different. It can actually weigh in the favor of paying maintenance as opposed to having dependent children.

Tamsin
Sounds like there's a lot to consider when you're looking at a mortgage and consulting a mortgage advisor somebody who has experience in this area that they can help and guide you and hold your hand seems to be absolutely vital.

Daniel
Absolutely. And that's what makes my role so, so enjoyable and exciting. I love doing what I do because I love thinking outside of the box, I love being able to help people and bring a smile to people's faces when they don't think things are possible or they're really just not sure. And it is complex. And it's not as simple as walking into your bank and just picking up the first mortgage available. And sometimes that's not even available. So, certainly, it's always worth getting independent whole of market advice.

Tamsin
Fantastic. Is there anything else that you'd like to cover today?

Daniel
No, I think that's all and but what I would always say is, if there is anything that anyone else wants to ask by all means, get in touch! You know, free initial advice is always there. I'm always happy to help.

Tamsin
Fantastic! Daniel, thank you so much for joining me today. It's been great to talk to you and find out more about how mortgages work. And if anybody does want to contact Daniel his details of how to contact him email and telephone number will be in the Show Notes from today's show. Daniel, thank you!

Daniel
Thank you for having me too!

Tamsin
Thank you for listening to the Smart Divorce podcast. If you'd like details of our guest today or of myself so you can get in touch, please check out the program notes. Many thanks. See you again soon.