Increase in break-up borrowing following divorce or separation

Increase in break-up borrowing following divorce or separation

According to conveyancing service provider, LMS, the proportion of borrowers remortgaging following a divorce or separation increased to 5% in May. This ‘breakup borrowing’ is up 3% from the previous month and up 2% on the same period last year.

As well as people refinancing to remove an ex-partner from their mortgage, the figures also include borrowers who need to raise funds to cover divorce settlements.

Remortgaging to pay off debts has also risen from 13% in April to 16% in May, while 26% of borrowers remortgaged to fund home improvements.

Commenting on the findings, Nick Chadbourne, chief executive of LMS, said: “While most borrowers remortgage to switch deals or save money, we have seen an increase in remortgaging for different reasons this month, including homeowners remortgaging due to divorce or to pay off debts.

“As divorce becomes simpler through innovations such as the government’s new online divorce system, so too is remortgaging. This may well be contributing to the use of remortgaging as a vehicle to raise fund for divorce settlements.

“In almost all cases customers are looking for an efficient process that delivers against both speed and value. A fees-assisted remortgage is the most appropriate vehicle, developed and refined for this process, it offers both customers and lenders great value and an efficient legal platform to make the switch.”

The most common reason for borrowers to remortgage is reaching the end of a fixed rate deal (63%) with demand for five-year fixed rate remortgages increasing year-on-year (up from 34% in May in 2017 to 42% in May 2018). However, in April 2018, five-year fixed mortgages made up 47% of the market, so there has been a decline month-on-month.

Nick Chadbourne added: “Demand for five-year fixed rate remortgages remains historically high as borrowers look to protect themselves from a potential base rate increase later in the year. While the popularity of five-year deals has dipped slightly month-on-month, they continue to dominate the market as borrowers lock in current rates for the long-term.

“Lenders are operating in a competitive landscape, given the volume of different five-year fixed rate products available. Borrowers may wish to consult a broker to ensure they get the best deal to suit individual requirements.”

Overall, equity released through remortgaging is at the highest level in ten months. At the same time, the gap between the average remortgage advance and the average redemption value of the original mortgage has widened.

Nick Chadbourne said: “The increase in the gap between mortgage advances and redemptions illustrates more borrowers are remortgaging to increase the size of their loans compared to previous months.”

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