Divorced parents hit by mortgage penalty

Payments for child support are not taken into account when they seek a new home loan

Divorced or separated mothers can face problems when they try to get a mortgage for a new home (Getty)

Mortgage lenders could be penalising thousands of divorced or separated parents, particularly women, because of a series of outdated and short- sighted policies.

Last year child support was paid to assist more than one million children in the UK, but some mortgage lenders fail to take this into account when assessing affordability and others only use a percentage when calculating how much an applicant can borrow.

With the cost of raising the children already taken into account by lenders, child maintenance payments are based on a proportion of the other parent's salary, currently £31,600 for men and £24,475 for women according to PayScale.com, and can form a significant part of a single-parent household's income.

Of 13 prominent UK mortgage lenders, at least two ignore these payments altogether and others demand evidence of a court order outlining payment arrangements – despite a Government push towards informal agreements, which around 150,000 families currently rely on.

At a time when property prices are increasing by 1 per cent a month according to the latest Nationwide House Price Index, such inconsistencies could mean the difference between securing a new mortgageor not.

Sarah Pennells, the financial adviser and SavvyWoman founder who conducted the research, also found that many lenders force women to keep their ex's name on the mortgage. “Mortgage lenders simply aren't keeping up with the times,” she said. “The fact is that almost 120,000 couples get divorced each year, and many thousands of relationships break down. Of these, numerous will result in the payment of child support. When couples apply for a mortgage they expect to stay together, but if a relationship breaks down and child support is required, a woman – or man - receiving child support could find they are not able to take over the mortgage. If remortgaging, they must be careful about the new lender they apply to.”

In the light of such challenges, some divorce lawyers are reporting that an existing mortgage is increasingly being seen as a valuable asset in settlements because it is so difficult to secure replacement borrowing.

James Pirrie, partner and child support specialist with law firm Family Law in Partnership, said: “Those going through separation and divorce are often completely unprepared for how the mortgage market has changed. Government policy aims to encourage those seeking to make an application for child support into settling their own arrangements, but these 'family-based arrangements' are non-binding.”

Ray Boulger, mortgage adviser for broker John Charcol, added: “Rather than restricting acceptance of maintenance payments to only 50 per cent or 60 per cent, as some lenders do when calculating affordability, once the principle is established there is a strong argument for not only accepting 100 per cent, but going further and grossing up the payments in view of the fact that maintenance payments are tax-free.

“Maintenance payments are only likely to be reduced or temporarily cease if the payer loses their job, in other words exactly the same risk with any mortgages generally.”

The warnings come as the Office for National Statistics reports that there were almost 1.9m lone parents with dependent children in 2013, a figure that has steadily grown in the last decade.