Castle Trust launches a new mortgage for divorcing couples

A new mortgage has been launched to help divorcees release equity from a shared house.

One in five couples who have had to sell their house because of a divorce have ended up losing money on the property.

A new mortgage has been launched to help people in this situation as it allows homeowners to release up to 20% of their property value.

This extra money can then be used to purchase a new property for one partner, while the other can continue living in the home.

The equity mortgage

In 34% of divorces, at least one of the partners hasn’t been able to buy another house making the process not only extremely stressful but also expensive.

The Castle Trust mortgage, known as a ‘Partnership Mortgage’, is available to people who have at least 40% of equity in their homes already. It releases 20% of the value – in the form of a 0% interest loan with no monthly repayments.

In return, when the mortgage is taken out there is an agreement formed that the borrower will share 40% of any increase in the value of the house with the provider when it's sold.

This starts from the day the mortgage is taken out, and if the value declines or doesn’t change, borrowers will simply pay back the original amount when selling the house.

It is set with a term of up to 30 years and as it’s not linked to the Bank of England base rate, there isn’t a risk of the price changing.

Financial shock

In more than a third of divorces couples are left with adversely affected finances. One in three people are also worried that a divorce will affect their ability to be approved for a mortgage.

The idea behind the mortgage is to reduce the financial shock of a break-up by giving both partners an alternative option to selling their home at a loss.

“Divorce can be one of the most stressful life experiences, often made worse by financial problems which develop as a consequence,” explains Sean Oldfield, Chief Executive Officer for Castle Trust.

The alternatives

Going through a divorce is rarely straight forward and can end up costing thousands. Solicitors’ rates are continually rising and most couples can’t afford to buy the other out when selling a home. Therefore they’re left to sell a house and often make a loss, leaving both without enough money to buy a new place to live in.

Another option they have is offsetting a property against other assets – but again this may not be suitable for everyone. As is the case with most divorces, a house is the most valuable asset someone has and therefore there isn’t anything else to offset this against.

Therefore this mortgage seems to be quite a good idea as it gives divorcees another option. Both will be given an injection of cash so they can keep the current property and have enough money to buy somewhere else.

However, the catch is if the house increases dramatically in value from the time the mortgage is taken out, the resulting profit will need to be split with the provider.

More on mortgages and property:

The best mortgages with no early repayment charges

How a divorce affects your mortgage

Second charge mortgages: pros and cons

Seven reasons mortgage lenders turn you down

Why getting divorced will damage your retirement income