Women Caught in the Money Trap

Mortgage lenders look at your income when deciding how much money they are prepared to loan you. But the traditional criteria they use lag behind the modern tax and benefits system.

Many divorced women with a family rely on child benefit and the Working Families Tax Credit to boost their income from work and maintenance payments. Lenders ignore these, leaving divorced mothers dependent on their former husbands.

Denise Tower, 34, is caught in this trap. Her former husband, James, has a mortgage of £88,000 part-endowment and part-repayment on their family home in Kingston, Surrey, in his name only, with a high street lender.

As part of the divorce settlement, Denise and their three children - Alexis, six, Amelia, five and Georgina, three - can remain in the £270,000 three-bedroom bungalow they lived in when married. But Dawn must take over the mortgage.

The £500-a-month maintenance John pays covers the mortgage repayments and insurance, but the lender will not put the mortgage into Denise's name. She earns more than £6,000 a year working part-time as a radiographer. In addition, she gets £105 a week Working Families Tax Credit and £35 a week child benefit, boosting her income to around £1,600 a month. But the building society ignores both the tax credit and child benefit so she does not qualify for a mortgage.

Denise also has a nine-year- old endowment policy, currently valued at £20,000, from her old property which she sold after she married. It is expected to be worth £70,000 when it matures in 11 years' time.

Since James took out a five-year fixed-rate mortgage of 5.59% only a year ago, the Towers are facing nearly £3,516 in redemption penalties if they move to another lender or if Denise is able to take it over in her sole name. The Towers have been the Lenders customers for nine years.

Denise has had a new mortgage agreed in principle by another lender, which offers a non-status mortgage at a rate of 6.6%, a 1% discount on its Personal Choice mortgage.

A spokeswoman for her existing lender says: 'We can't change the mortgage to Mrs. Towers name because she does not have sufficient income. We can't take the child allowance and Working Families Tax Credit into account. That is our standard policy. Since the Towers are only one year into a very good, discounted rate, we cannot waive the redemption penalties. Even if they moved the mortgage from his name to hers, it would still be treated as a new mortgage and would be liable to penalties. The only way they can avoid the penalties is to keep the mortgage as it is or put it into joint names.'

Most lenders operate similar criteria to the lender, though some waive redemption penalties in extreme circumstances such as these. The situation can be doubly complicated if the mortgage is in the man's sole name, because switching it to the woman's may be regarded as a new mortgage and incur penalties.

If there are no redemption penalties on the mortgage, borrowers could go to banks which offer self-certification or non-status loans such as Capital Home Loans, UCB, the Mortgage Business, Bank of Ireland or Bank of Scotland.

A self-certification mortgage relies on the applicant declaring the total amount of personal income without having to state all the sources of income, but the interest rate is typically 1-2% higher than normal mortgage rates.

This places many people in an impossible, Catch 22 situation. If you move to a self-certification mortgage you may have to pay redemption penalties and a higher interest rate. If you stay put you remain financially entangled with your estranged spouse who is not able to take out a mortgage in his or her own right.

This article is intended for general guidance only and you should take independent financial advice before proceeding with any financial undertaking.

Print this page

Information on this page is current and last updated: 12/03/2008

Call us now on:

• Overview
• Finances & You
• Mediation
• Mortgage Problems
• Websites
• Discuss this topic
• « back