FINANCIAL WELLBEING HUB
FINANCIAL WELLBEING
We understand how difficult it can be to deal with unexpected life events. Whether it’s divorce or loss of a loved one, you’ll understandably need time and space to come to terms with things.
While financial matters won’t be your priority at this time, there are some important things you’ll need to be practical about. One of the biggest of these is the home you’ve shared. Especially if the mortgage on that home isn’t fully paid off, or it isn’t in your name.
This article covers the issues surrounding a mortgage when you’re suffering a bereavement, or when you go through a divorce.
- Cruse Bereavement Care can help with your feeling of grief
- The Samaritans is a completely confidential service for any type of emotional distress
- Age UK are the UK’s largest charity dedicated to helping people make the most of later life
- Widowed and Young is a support group for young widowed men and women across the UK
What to do first
If you’re dealing with the death of a loved one, there are some steps you need to follow. If you haven’t already, see the Government’s guide on what to do when someone dies. This includes information on how to register the death. Once you’ve done that you’ll be given a death certificate. You may want to ask for extra copies of this, even though there may be a fee involved — a lot of organisations will ask to see the original.
What happens to their belongings?
Everything your loved one owns is known as their estate. This can include money (cash, bank or building society accounts), property, insurance policies, stocks and shares. The estate is shared out based on their will – or given to the next of kin if no will was left.
Applying for probate
Someone needs to be in charge of dealing with the estate. If you’re named as an executor in the will, or you’re the next of kin and there’s no will, you might need to apply for probate.
Doing this means you can:
- Get the estate together
- Deal with any paperwork
- Settle any debts, taxes, funeral and administration costs
- Appoint a solicitor
You can hire an accountant or solicitor to help you deal with an estate.
What to do about a mortgage after bereavement
When someone dies, you’ll need to let the mortgage lender know as quickly as possible. You may be worried about this, but they’ll know what to do – and will treat you with kindness and respect. If you don’t let your mortgage provider know, they won’t be able to support you.
Every lender has their own ways of dealing with a bereavement. They’ll guide you through the next steps, and usually ask to see a copy of the death certificate.
If the mortgage is with Pepper Money, you can call us on 03333 701 102 (lines are open 9am-6pm, Monday to Friday) or email us at [email protected]. One of our friendly team will be there to help.
If you’ve lost a spouse or partner
It’s not something that any of us wants to think about. But if your spouse or partner dies, what happens next will depend on what type of mortgage you have. Remember to keep
paying the mortgage while you consider your next steps.
When you have a joint mortgage
Many people have joint mortgages. They are usually set up as either a ‘joint tenancy’ or a ‘tenancy in common’.
- If your mortgage is a ‘joint tenancy’ then the mortgage will continue in your name. All terms, interest rates and monthly payments will stay the same. You’ll inherit your partner’s share of the property – and their share of the mortgage debt. They may have assets, life insurance or other benefits to cover the debt. If not, you’ll need to keep making the payments, or look to refinance or remortgage.
- If your mortgage is a ‘tenancy in common’, the person who inherits your partner’s share of the house should be named in their will. You’ll still be jointly responsible for the mortgage debt with whoever this is.
When the mortgage was in your partner’s sole name
In this case, the mortgage will need to be paid in full. If this is happening to you, talk to your lender. They’ll help you as much as they can – many will let you stop payments for a few months while you get things in order. Be aware that interest will still be added to the mortgage during this time.
- If you and your partner were married, you’ll legally inherit your home – even though you weren’t named on the mortgage. You’ll need to arrange a new mortgage in your name.
- If you weren’t married or in a civil partnership, it gets more complicated. You may not have a legal claim on the home you shared. If you have children together, the property will go to them – unless your partner left a will stating otherwise.
What if your partner had life insurance?
The payout should be enough to clear some or all of your mortgage debt. If you don’t know if they had life insurance, you can ask their employer or contact companies they may have had a policy with directly.
Do you have to pay inheritance tax on your home?
It depends on your circumstances. If you’re married or in a civil partnership, the home passes to you. This is exempt from inheritance tax. But, if you weren’t married and you
inherit some or all of the home – you will have to pay inheritance tax if it’s over the threshold.
What if you can’t afford the mortgage on your own?
If you’re struggling, speak to your lender to see if they can make your mortgage more affordable. This could include extending the term, switching interest rate or changing the type of mortgage you’re on. There’s a chance this may be considered a new mortgage application, which means new affordability and credit checks.
Remember, if you miss mortgage payments you risk having your home repossessed. Your credit score will also suffer, making it harder to get a mortgage in future. Speak to an independent financial adviser, who can look at your situation and recommend the best way forward.
Getting divorced or breaking up with a long-term partner is hard enough. But sorting out your finances can be a real headache. We’ve put together the information below to help you work out a way forward.
If you’ve got a mortgage together
It’s important you’re aware of your options, so you can make the right decision. If both your names are on the mortgage, you’re both responsible for paying it until you reach a financial settlement. Even if one of you has moved out of the family home. Missing payments will damage your credit score and your ex-partner’s – it could even lead to the home being repossessed.
What to do first
Tell your mortgage lender as soon as you know you’ll be separating – especially if you think you’ll struggle to make the payments. You’ll find they’re usually sympathetic, and may even offer you a payment holiday to give you some breathing space. Bear in mind that your mortgage agreement will still be in place, so you’ll still need to make a longer term plan.
It’s also worth talking to a solicitor. If you’re moving out of the family home, you may want your name removed from the mortgage. A solicitor can check this won’t result in you losing your share of the property. If your ex-partner wants their name removed, you’ll need to be able to make the repayments on your own.
What are your options?
Not sure what to do about the family home? There are a few different ways forward:
- Sell the home. You’ll both move out, and you can split the money raised to put towards your next property
- One of you buys the other out, if they can afford it
- Keep the home and don’t change who owns it. One of you can keep living in it, for example until children are 18 or leave school
- Transfer part of the value from one partner to the other, as part of a financial settlement
Sorting out a joint mortgage
If you have a joint mortgage, it’s a good idea to try to change it so only one partner has their name on it. This may not be possible, depending on your financial circumstances. If you want to put the mortgage in your name, the lender will need to make sure you can afford the payments.
Having only one name on the mortgage means:
- The partner whose name is taken off should be able to borrow more towards their next home
- The partner who stays in the house won’t have to rely on their ex for the mortgage
- You can separate your credit files, giving you a clean break
What if you can’t afford the mortgage on your own?
You might be able to get a ‘guarantor mortgage’ if your lender won’t give you one on your own. This is a mortgage where a close relative agrees to pay the mortgage if you can’t. Becoming a guarantor is serious and legally-binding. Anyone considering it should get independent legal advice, and talk to a mortgage adviser.
Deciding what’s best for you
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