The Four Different Types of Mortgage Capacity Reports

couple discussing mortgage capacity reports with solicitor

Chances are, if you are reading this article, you have been advised by your solicitor to obtain a mortgage capacity report or you have been issued with a court order to obtain one. Court proceedings are immensely stressful so you might be fretting about what a mortgage capacity report is and how to go about getting one.

The great news is you can obtain a mortgage capacity report with ease providing you approach an FCA regulated mortgage advisor. A reputable mortgage advisor will take you through the process in a stress-free manner and compile a report for the court.

Let’s explore the four different types of mortgage capacity reports.

Why Would You Need a Mortgage Capacity Report?

The most common usage of a mortgage capacity report is during divorce proceedings where financial settlements are being agreed. The purpose of a mortgage capacity report is to demonstrate to the judge you have the financial capability to afford a mortgage.

Typically, this will be on the family home and will allow the judge to evaluate who receives the property and how the ongoing mortgage is covered. In other cases, the judge may want to evaluate how affordable a second property is alongside your existing property.

Finally, if you have a lot of property, a judge may want to ascertain your mortgage capacity across them all, and ensure they are considering the burden of your overall financial picture when dividing the assets.

Mortgage capacity reports are not just for divorce proceedings however, there are other instances where a judge may request a mortgage capacity report, normally in the context of Family Court and dealing with childcare or child arrangements orders.

What is a Mortgage Capacity Report?

Before your divorce was initiated, chances are you were paying for the mortgage on a joint basis. In most cases a family home is in the names of both married partners.

As part of divorce proceedings, a judge will evaluate how your marital assets are split and normally the family home is a cornerstone asset couples raise disputes over.

Absent an agreement between both parties, a judge will want to delve deeper into the financial situation of all parties involved and decide the fairest way to divide the marital assets.

It is important to remember that a judge looks at the picture in totality, rather than just from the perspective of you or your ex-partner. This is especially the case if you have inherited property or if there are children involved.

A judge will want to reach an equitable outcome for everyone without placing either party into financial hardship or causing what is known as an undue burden. Mortgage capacity does just that and outlines clearly how much financial stress it would cause for you to pay a mortgage separate to your ex-partner.

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The Four Types of Mortgage Capacity Reports

There are four types of mortgage capacity report, all used to varying degrees and all fulfilling a specific purpose.

Single Mortgage Capacity Report

The most common report requested is a Single Mortgage Capacity Report and it is designed to show a judge if you can pay a mortgage on your own.

Remember, a mortgage capacity report can be beneficial to your case, especially if you want to retain a financial interest in the family home. It will also allow a judge to make an informed decision and the likelihood of a fairer outcome is higher when you use a mortgage capacity report.

Joint Mortgage Capacity Report

In some cases of divorce, one partner has already moved on and they may need to provide a mortgage capacity report on a joint basis.

In rare cases, you may be asked to provide a joint mortgage capacity report with your ex-partner. This is normally a last resort for a judge as they prefer to agree financial settlements that allow both parties to separate as cleanly as possible.

Multiple Scenarios Report

As the name suggests, this is a niche mortgage capacity report where a claimant or respondent to a case is seeking to demonstrate their mortgage capacity under different scenarios.

Multiple scenario reports can be an extremely powerful negotiating tool as they could demonstrate your inability to afford a mortgage in a certain scenario but show you could afford a mortgage if the decision made is different. Of course, being able to afford a mortgage in a certain scenario, signposts to a judge which option is financially fairer.

No Mortgage Capacity Assessment

Finally, a no mortgage capacity assessment will be created if you are unable to obtain a mortgage.

These are crucial reports because in the circumstance you are not able to afford or obtain a mortgage, you will need to provide a court with evidence. Failing to do so could result in a ruling that causes significant long-term financial hardship.

Because your mortgage capacity report will be used as evidence by a court to assess your financial situation it is best to be completely honest throughout the process. Failing to disclose something relevant could cause financial chaos in the future because a judge did not have adequate information to make their decision.

When Might a Mortgage Capacity Report be Ordered?

Normally, mortgage capacity reports are part of divorce proceedings. However, they can also be used as part of child arrangements proceedings. For example, if you have already divorced and are seeking to vary the existing child arrangements order, a court may well want to address the financial implications of varying the order on both parties.

Child Arrangements

Historically this was called a custody proceeding but in recognition that children are not property, modern courts now deal with children in a more flexible way. Often preferring to ensure a child has contact with both parents wherever practicable.

A mortgage capacity report in this context may be required if one party wants to relocate and the children are to reside elsewhere or for several other complex reasons that crop up during child arrangements proceedings. A court will want to ascertain how your ability to repay or obtain a mortgage will impact your child arrangements.

Benefits Payments

In rare cases, a court may want to know how much you rely on benefits to pay a mortgage or whether the benefits you receive will have a bearing on a mortgage.

Mortgage Deposits

Ordinarily, a mortgage capacity report would not be ordered expressly to determine the size of your deposit. In most cases an agreement in principle alongside a declaration or bank statement showing your deposit will suffice. In some cases, your ability to obtain a mortgage may still be uncertain or the court wants to double check your deposit and potential borrowing amount.

In these cases, a mortgage capacity report may be requested for the purpose of checking your deposit.

Childcare Costs

As with benefit payments, ongoing childcare costs can significantly alter the amount you can afford to pay on a mortgage. A judge may order a mortgage capacity report for one or both parties factoring in childcare costs to decide which parent is best suited to provide for the children.

It is important to note here that in most cases, this will be a secondary piece of evidence and a judge is unlikely to make a ruling exclusively on your financial capability to look after your children. The judge will normally use this as a box ticking report to bolster a decision made.

A court’s primary concern when children are involved is what is in the best interest of the children and your financial standing will often have little bearing unless one party is unable to provide adequate care.

Working Arrangements

A recent precedent was set in the family courts when a father appealed a court decision that ordered contact take place in a way that conflicted with his existing work arrangements – putting him in undue hardship.

A court must now ensure they are making child arrangement orders that allow the parents to meet their financial obligations unhindered by such rulings. These reports have been rarely used in the past but with a greater emphasis on undue hardship, are likely to become more prominent in the years to come.

Mortgage Capacity Report Process

The process of obtaining a mortgage capacity report is straightforward.

You must use a Financial Conduct Authority regulated mortgage advisor. You should also expect a fee to be charged by the advisor as they will be conducting a lot of work on your behalf to prepare a legal document.

The process is similar to that of getting a mortgage and your advisor will go through a fact-find with you. Instead of obtaining a mortgage, you will be provided a report at the end to submit to the court.

You may well choose to return to your mortgage advisor to arrange the mortgage after the ruling has been made as it will save you doubling up on providing information and the advisor will know exactly what mortgage you need.

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Why You Need an FCA Regulated Mortgage Advisor?

Because a mortgage capacity report is used in a court of law, you will need to provide a report given by a mortgage advisor in good standing with the court. To qualify the advisor will need to be authorised and regulated by the FCA and have whole of market access.

Remember, although a mortgage capacity report may be sufficient on its own, the opposite side may dispute the information in the report and request what’s known as a fact-finding hearing. In these circumstances a mortgage advisor will be called to give evidence to the court and validate their report.

A court wants to be able to trust the information provided is honest and accurate and having the FCA as a regulator gives them a judge added trust they can rely on the advisor’s testimony.

Speak to a Specialist

Mortgage capacity reports are important for your long-term financial security and obtaining an equitable outcome in court.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers is authorised and regulated by the Financial Conduct Authority.

Boon Brokers provide a specialist Mortgage Capacity Report Service designed for court use.

Contact Boon Brokers to discuss your mortgage capacity report today.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.