Financing your new home

Before you can begin the hunt for a property to buy now that you are divorced and single again you need to assess what you can reasonably afford to borrow and pay back without bankrupting yourself.

As if getting a divorce were not enough to have bankrupted you,  being on your own again means that you have only yourself to depend on to pay all the bills and it can be an alarming prospect if you have been used to having two salaries going into the bank. Not only will you have to take into account the actual asking price of any property you may be interested in and the other expenses involved in moving but also future running costs.

If you have already sold a property which you previously owned jointly with your spouse then you will be in a stronger position than if you were a first time buyer trying to wiggle your toe onto the bottom rung of the housing ladder.  It'a a tricky business so it's good to have all the information and advice you can get.

Buying and moving costs
Be practical. Boring but necessary. Make a detailed list of all your day to day expenses such as food, utility bills, council tax, TV licence, house and contents insurance, clothing, school fees if your children are at independent schools, any other credit payments you may have; entertainment, post divorce holidays, trips to the hairdresser, botox injections, etcetera, etcetera.

Add it all up and you should be able to work out what you have left to pay the mortgage. The result may result in a panic attack as you contemplate your future as a divorced person, maybe with children to look after, living in a cardboard box on the side of the motorway but it is possible that with careful budgeting you will still be able to afford something albeit a tad more modest than your present des res. However, it will be somewhere to slob about in your trackie bottoms and a T-shirt eating baked beans straight out of the tin with no-one to criticise or raise a disdainful eyebrow.

As for moving costs there are all the usual suspects such as estate agents’ fees, stamp duty, surveys and local authority searches, and the Home Information Pack , hiring a removal firm to transport your possessions to your new home (not forgetting the industrial sized packet of teabags and the gallons of milk needed to quench the thirst of those hard working chaps shunting your furniture around).

And then, if all that were not enough you will probably want to do a certain degree of re-decorating when you move into your new home. If the previous owners have not left curtains or carpets you will need to budget for those too as well as other household necessities which you may need.

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Getting a mortgage

 Aside from holding up the cashier at your bank and demanding that they hand over the money in used fivers you are undoubtedly going to need a mortgage.

Assuming that you have sold the matrimonial home and divided up the assets then you may have enough for a deposit on a new home. How much you can borrow will vary but generally speaking you should be able to borrow three and a half times your annual salary.  In the boom times this rose to five times your salary.  The credit crunch and the deepening economic recession have made mortgages extremely scarce.  Falling house prices only make the selling and post divorce buying of property even more difficult.  It is a good idea to seek the advice of an  Independent Financial Financial Adviser (IFA) to guide you through these turbulent times.

Most lenders will loan up to 75% of the value but gone are the days when it was possible to borrow up to 90% or even 95% of the value of the property. The recent near collapse of the credit market has made lenders not only lend less as a percentage of the value of the property but also tighten their lending criteria.

IFAs
If you wish you can use an IFA (Independent Financial Adviser) to help you find the right mortgage. An IFA will have access to all available products and can shop around for the best deals. You will have to pay them for their advice but in these difficult times professional advice could make all the difference.

Remember that you should only borrow as much as you can reasonably afford to repay and to plan for future changes such as losing your job and the inevitable rises in interest rates.

FSA
The FSA (Financial Services Authority) is an independent non-governmental body which is funded by the firms it regulates. It provides information for companies and consumers on financial products and services.

Remember that if you do not keep up payments on your mortgage or other loan secured upon your home it may be repossessed.

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Mortgages

A mortgage is a loan taken out to buy property and is probably the biggest financial commitment most of us will make. It can be daunting if you are now to be solely responsible for paying a mortgage when previously there were two of you. Even if you have been able to stay in your home as part of the divorce settlement you may still have to pay the mortgage.

You can change your lender without moving home in order to get a better deal – this is known as re-mortgaging. It is also the best and cheapest way to borrow a large sum of money in the long term.

There are two basic types of mortgage; repayment or interest only.

A repayment mortgage is one where monthly repayments are made for an agreed period until the loan and any interest due is paid back.

An interest only mortgage means that you make monthly repayments for the agreed period but these only cover the interest on the loan. To pay off the loan at the end of the term you will need to pay into another investment or savings plan or be prepared to re-mortgage again.

Your mortgage company may require you to have life insurance that will pay off your mortgage in the event of your death and insurance is also available that will cover your repayments if you become ill or are made redundant.

moneymadeclear.fsa.gov.uk is an invaluable place to find out about mortgages and a whole lot more. Check it out whether you are thinking about buying a house or looking around to change your mortgage.

Remember that if you do not keep up payments on your mortgage or other loan secured upon your home it may be repossessed.

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