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What is a Mortgage Capacity Report?
A Mortgage Capacity Report is a document prepared by a qualified mortgage advisor to aid a person going through a divorce or separation.
It explains to the person what they may be able to borrow depending on certain situations.
The document is then used to come up with a separation agreement regarding the couple’s finances.
Very often, a borrower may need to purchase the other owner’s share in the property. The amount of money that gets allocated to a person during a separation will depend on multiple factors.
A judge would hear information from both sides, taking into account children, people’s earning potential and more, to agree a financial settlement believed to be fair to both parties.
The Mortgage Capacity Report will tell the judge what a person’s borrowing potential is, taking into account many things.
For instance, how much of a deposit they may have following the separation or divorce. Their income and outgoings are also taken into consideration to calculate the maximum loan that may be achievable.
The borrower’s retirement plans will be factored and this would affect the term of the mortgage.
Once everything has been taken into consideration, a mortgage advisor will carry out some research and then prepare a letter explaining what your options would be in certain situations.
Many separation solicitors insist on this letter being drafted, and it is important that a qualified mortgage advisor prepares it.
Mortgage Capacity Reports are usually just for residential mortgages and not buy to let mortgages.
This is because it is a confirmation of what you may be able to borrow on a residential mortgage basis.
Not all mortgage advisors will offer the service, as some just focus their time on arranging mortgages instead.
If you have a mortgage advisor that you like to work with, you should ask them whether they offer this service and what their fees would be.
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How much does a Mortgage Capacity Report cost?
The amount of money that a Mortgage Capacity Report costs will depend on the firm that is arranging it.
Some mortgage advice firms do not offer the service at all due to the time it takes to prepare a report, and their own capacity.
However, a common for a Mortgage Capacity Report seems to be in the region of £250.
Firms may charge more if there are multiple scenarios to take into account (for instance, mortgage capacity based on numerous alimony outgoing examples that are not agreed).
Mortgage advisors may also charge more when amendments to the report are needed.
Firms should be able to tell you how their fee structure works and what the cost would be if amendments are needed.
Some mortgage brokers may be willing to reduce your broker fee if you proceed with the mortgage through them (having paid for a Mortgage Capacity Report).
Again, this depends on the individual company and their structure, so make sure that you are clear on fees before proceeding.
Is the information in a Mortgage Capacity Report accurate?
If the Mortgage Capacity Report has been drafted by a qualified and experienced mortgage advisor, there is no reason for it not to be accurate.
The mortgage advisor will take into account how much of a deposit you expected to have, your debt obligations and monthly payments, your retirement age, a full breakdown of your income and expected outgoings.
This will give them a good guide of what you may be expected to borrow when you come to apply for a mortgage.
However, the important thing to note is that criteria and lender’s calculations can change anytime, so what may be correct when drafting the report, may not be achievable in the future.
Also, every mortgage application is fully underwritten and lenders will be looking at your credit file and personal documents doing their full due diligence.
It is not possible for a mortgage advisor to know the outcome of this process when drafting a Mortgage Capacity Report.
You can find out more about your own credit file by visiting credit reference agencies such as Check My File.
Do you need a mortgage broker for a Mortgage Capacity Report?
If you were taking a Mortgage Capacity Report to provide to a solicitor or judge to agree a financial settlement, it is important that it is accurate.
As a result, it will be needed to be drawn up by a qualified mortgage advisor that is regulated by the Financial Conduct Authority.
It is likely that it will be a requirement of the judge that this is the case too.
With the outcome of the process being so important, it is recommended that you look for a qualified mortgage advisor that has experience in arranging these reports already, who can understand your situation and guide you accordingly.
Conclusion
Mortgage Capacity Reports are important documents when you are going through a divorce or separation.
They demonstrate to a judge or a solicitor what your mortgage capacity is so they can you get a good idea of what you may be able to afford once a settlement goes through.
As the document is to be used in court, it is important that they are drawn up by a qualified mortgage advisor with experience in arranging them.
If you would like I NEED ADVICE to match you with a regulated, qualified mortgage advisor that can talk to you about your situation and give you your options around Mortgage Capacity Reports, please complete the contact form.
The information on this page is not tailored to any individual readers and should not be considered financial advice under any circumstances.
If you are seeking advice about a mortgage, you should consult a qualified professional.
