Unfortunately, divorce can happen at any time and at any age, and whilst divorce in general is on the decline, figures from the UKs Office for National Statistics show that the divorce rate amongst those age 60+ has risen 100% between 1993 and 2019.
At what can be an extremely stressful and emotional time, financial burdens of a divorce can often exasperate the situation even further. The majority of people are simply looking for a clean break and the space to consider their future and future living arrangements.
It is often the case that the marital home is one of the most significant and largest financial assets many couples have. Therefore, it could be that the couple choose to sell the home and purchase houses separately. However, in our experience of these types of situations, we find that more often than not one party tends to wish to remain in the marital home, where possible.
At Equity Release Supermarket, we have helped many customers achieve a solution on separation by using the equity in the family home. Releasing some equity from the marital home through an equity release arrangement can enable one of the divorcing parties to continue living in the marital home.
Alternatively, or as well as, the moving party could also take out an equity release arrangement if needed, on their new property to bridge any shortfall between the monies released to them from the marital home in order to pay towards the purchase price of their new home.
Of course, the usual criteria will apply to enable this to happen. For those, who wish to take out equity release, they need to:
- Be a homeowner
- Have a property worth in excess of £70,000 (based on an independent valuation)
- Are over the age of 55
Assuming the applicable parties fulfil these criteria, then lifetime mortgages and retirement interest-only mortgages (RIOs) may be a solution to separate amicably. Any financial settlement would of course need to be addressed legally, and therefore any release of equity would form part of that agreement.
From this point, there are several options available, from choosing a suitable plan, to understanding the amount you could borrow (worth bearing in mind that the less you borrow, the more favourable the interest rates available). However, this is where our smartER tool can help to guide you through the process and understand what products, and amounts are available to you.
smartER™ is an online-real time research tool that helps to find suitable mortgage plans based on your personal criteria. It analyses hundreds of product variants to determine the exact amount you can borrow, and the interest rates you would qualify for. Therefore, it’s a great tool in understanding more about your equity release options.
Following the divorce settlement, there are usually two outcomes with regards to the property itself:
- The property is sold, and the proceeds are distributed between both parties
- A divorcee remains in the matrimonial home and the other moves out to purchase a new property
Both these scenarios can pose financial difficulties post-divorce. Not only will that be the day-to-day living expenses from loss of the partners income and the legal costs associated with divorce, but also affording the next stage in their lives and maintaining or finding their next abode.
For scenario 1, depending on the proceeds, even if 50% was the split, this will result in a substantial drop from the price of their matrimonial home to the next property they wish to purchase. However, all is not lost, as many people do not realise that if you’re over the age of 55, you can use the proceeds of divorce as the deposit towards your next house, then apply for equity release to bridge the shortfall.
For simplicity, if someone age 65 had a joint matrimonial home valued at £350,000 and came out with a 50% share - £175,000, they may consider they have to look for properties in this price bracket. However, that isn’t necessarily the case, as this £175k can be the deposit towards the next property with equity release being used to bridge the difference between that & the purchase price.
At age 65 you can raise 33.5% of the property value using a lifetime mortgage. Therefore, you could actually consider upgrading to a property valuation of around £263,000, using the £175k as a deposit with the shortfall of £88,000 being raised via equity release. We experience and advise many people on this situation and has helped provide greater flexibility on what could be achieved with their next house move
In scenario 2, where one party remains in the matrimonial home, equity release can actually come to the benefit of both divorcees. Firstly, the party remaining in the property will need to raise sufficient funds to pay the outgoing partner their entitlement to the divorce proceedings. Usually a mortgage could assist with this. However, this may become more difficult based on their sole income, occupation, age and whether that income is sufficient to justify a mortgage of 50% of the proceeds.
Should that fail, again an equity release lifetime mortgage could raise the funds to pay off the ex-partner as part of the settlement. The question would always be how much the settlement is & can a lifetime mortgage raise that amount?
That will ultimately depend on the age of the person remaining in situ and the property value. But as shown in scenario 1, at age 65 upto 33.5% of the property value can be raised – the older you are the higher this percentage becomes. (Check smartER for an upto calculation of your maximum loan). Sometimes this process can fall short, as the percentage loan-to-value of the property maybe insufficient to meet the divorce settlement required.
The outgoing partner, looking to buy their next property can use these proceeds (as in scenario 1) as their deposit to buy another property with their own equity release plan on the new property, thus elevating the potential property price they can afford.
Obviously, any advice provided would look at the complete picture and the alternatives to equity release, such as residential mortgages and RIO mortgages, but hopefully this offers an insight into how equity release can help divorce settlements and property purchase following separation.
To discuss any of these areas or if you would like calculations from a local equity release specialist, please call Freephone - 0800 088 5924 today.
