The new divorce battle: who gets to keep the low mortgage?

Emma and Tom’s* north London house may as well be divided by duct tape. She gets the bedroom and ensuite; he has the spare room, upstairs bathroom and office. Emma has the run of the kitchen immediately after the children go to bed; Tom can cook dinner any time from 8.30pm. They’ve even rationed access to the television and sofa, with her getting peak lounging time from Wednesday to Saturday, and him from Sunday to Tuesday.

“Sometimes the day goes well enough that we can eat or watch a film together,” says Emma. “But at this stage it’s easier to be apart – we’re getting divorced for a reason and unless we’re with the children, we’d both prefer to limit the time we spend in each other’s company.”

The former couple decided to end their marriage last November. At any other period in recent history, the ink would already be dry on the papers and one of them would have moved out of the family home and bought or rented somewhere new. But their soaring mortgage repayments (they had to renegotiate in June) and stagnant wages, coupled with the price of raising two small children in the capital, means that their decision to divorce can’t be translated into a physical separation.

“It has been the hardest year of my life,” says Emma. “Deciding our marriage wasn’t working was difficult enough, but when we sat down and looked at our outgoings, we realised we couldn’t afford to run two households until we had saved some money. Having to live together and rehash it all whenever we argue is emotionally draining. I also really worry about the impact it’s having on the children.”

This scenario is about to become far more widespread. “As the year progresses and new interest rates come into effect, we will see an increasing trend for divorcing couples who simply can’t afford a second mortgage or rent,” says Jo Carr-West, a senior partner at Hunters Law. “They will have to stay in the same home, and while the likelihood of that happening depends on where you are on the scale of wealth, maintaining two properties is now a challenge even for those on sizable salaries.”

Over the course of researching this article, I spoke to six divorce lawyers – all of them said the remortgaging cliff that homeowners are about to fall off was making separation more complicated than it has been in decades; two-thirds told me that interest rates were now one of the first things new clients asked about.

“Look, it’s always a difficult time to separate, but this is going to turbocharge the divorce market,” says Harry Gates, the co-founder of the Divorce Surgery, a law firm that takes on both parties in a separation to ensure a quicker and cheaper split. “The mortgage crisis is making it even harder to plan in cases where money is tight, as now every penny matters. I’ve always said that the cases where there isn’t enough to go around are harder to settle than the ones where there is masses of cash – that feels particularly true this year.”

The punishing increase in interest rates is pushing home-owning couples with debt one of two ways. Some are rushing to finalise a divorce much faster than they should be so that the partner moving out has time to secure a new mortgage before rates spiral even further out of control.

“People always wanted to move on, but now there is time pressure as mortgage rates are changing within 30 seconds or a minute, and it’s creating self-imposed deadlines that didn’t exist before,” says family law barrister Tahina Akther, who is a director of Wildcat Law. “Delays mean that any new mortgages will be higher than they were before, which is putting anyone who goes to court in a particularly difficult situation as there is a backlog.”

Other couples are holding tight and waiting until next year to start their separation in the hope that interest rates will have gone down.

In many cases, the law is not on their side. “The Matrimonial Causes Act 1973, the law that dictates how divorcing couples deal with their finances, was never set up to deal with debt,” explains Emma Gill, regional managing partner at divorce firm Vardags.

“The current mortgage crisis throws this into sharp relief. Properties that were once affordable now have to be sold. Mortgage deals agreed in the past 12 months are giving spouses ammunition to stay put in a property and ride the wave of  lower rates to avoid a penalty. Borrowing capacities have shrunk, meaning it’s less likely one partner can buy out the other. Worse still, uncooperative couples are allowing previous fixed rates to lapse, meaning monthly payments skyrocket.”

The issue of fixed-rate deals complicates everything. In most households, a five-year cheap mortgage below 2 per cent would be a reason to pop champagne corks. But in the world of divorce, it has become a negotiating hurdle, with some lawyers classing it as a “desirable asset” and cases being delayed or going to court because nobody can decide who is allowed to retain it.

In many ways, getting custody of the low-rate mortgage is akin to getting the house in France or the expensive car, as the partner paying off a loan at 1.5 per cent will save thousands of pounds compared to the one paying off a new mortgage at 6 or even 7 per cent.

“The stronger financial party tends to be the person who negotiated the mortgage; they will then have the income to hold on to it,” says Jenny Bowden, senior associate at family law firm Stewarts. “If they have a good deal, they will want to keep it either for that property or their new one. But they have to remember that their spouse also needs a mortgage – and the court will look closely at the weaker financial party’s capacity to pay one in this new set of financial circumstances, particularly if there are children involved.”

In other words, getting the low-rate mortgage might be a triumph – but it could also mean paying more maintenance to the other party.

This new financial reality is making it much more difficult for couples who wanted to have a clean financial break to do so, because the higher earner of the two is now often having to act as a guarantor for their former spouse.

“Recently, we have been unable to secure new properties for the wife without the husband being a guarantor, as mortgages are now so much more difficult to source,” says Bowden. “This is a new development and one nobody wants.”

She has also seen cases where a fixed-rate mortgage is being used as a form of leverage by one party. “It’s borderline coercive and it’s certainly financially controlling, but it does place pressure on people,” she says.

Akther describes a case where the wife stayed in the family house, and during the divorce the husband refused to sign a new mortgage offer, which left her stuck on an expensive standard variable rate as remortgaging required both signatures. “It was a tactic to negotiate over other assets and alimony,” she says.

These issues are also making both parties more anxious about selling the family home. “Until recently, people were quite happy to move on and each buy something new,” says Akther. “But now people think it’s silly to sell, which is an argument I never used to hear.”

For Gates, the only solution to this undeniable crisis is for couples to try to get along as well as they can. “You have to be amicable and try to settle – the fighting is the thing that is expensive and the price is beyond the reach of even the very rich these days,” he says.

His partner, Samantha Woodham, agrees, adding that in this new climate, compromises have to be made. “We had a case where a couple agreed to stay as co-owners with both their names on the mortgage for a significant period. That would have been beyond the pale in previous years as it has consequences for the non-habiting partner, who needs to bring in their own mortgage. Ripples are being felt through people’s financial futures.”

Other couples are taking it in turns to co-parent children in the former family home.

This living arrangement, dubbed “birdnesting”, involves both estranged parents rotating between their former home and cheaper rented accommodation to keep costs down.

The benefits include maintaining a stable home and schooling for children, plus reducing housing and other bills, though, of course, this leads to a lack of stability for both parties.

Woodham mostly emphasises the importance of doing whatever possible to physically separate once a marriage is over. “I understand that the crisis is making people terrified to disentangle finances – but divorce is never a financial decision; it’s driven by emotion. If you’re in an unhappy relationship, it can be really bad for your mental health to stay – and there are always strategies we can use to find a path forward.”

For Emma, there is little to be cheerful about. “The only positive is that Tom and I have been invited to a couple of the same weddings this summer; in both cases the bride has called me to ask if I’ll be OK with having him there. I have to laugh – if we can separate and survive life in a terraced house together, we can survive one night in a marquee.”

* Names have been changed