Mortgage Capacity Report
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Mortgage Capacity Report
Charles Breen talks us through a mortgage capacity report and when these might be needed.
What is a mortgage report?
A mortgage capacity report is a document usually prepared for the courts when you’re going through divorce proceedings. It sets out how much of a mortgage you could potentially raise on your own.
They want these reports to work out your affordability for paying spouse and child maintenance, or how much you need to receive. In the past, people would just go to a mortgage advisor and get a Decision in Principle to present to the court.
The process has become much more formalised, because the previous approach didn’t give the courts much information. They now look for certain things in the document and a set format is required so it’s easy to read and figure out your needs and capabilities. It’s all about your housing options after a divorce, and either your capacity to either support someone else or to be supported after divorce.
Who needs a mortgage capacity report and why?
When you’re going through a divorce, it’s normally a court mandated document because they want to know the finances. So it’s needed by people who are going through a divorce.
Your solicitor will tell you you need to get one of these. It’s a requirement from the court so that they know your mortgage raising ability and can make an accurate assessment of your needs once the divorce is completed.
Who produces the report?
Finance professionals – mortgage advisors or financial advisors are the ones who produce it because we have expertise in this area. It needs to be someone qualified with experience and expertise.
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What types of mortgage capacity reports are there?
There are no capacity reports, which basically state that you’re unable to raise a mortgage for whatever reason. That’s the most basic of reports. Then there is a single capacity report and a joint capacity report. These are two sides of the same thing.
A single report is where just one person needs to have a report done. A joint report is where both parties, usually via their solicitors, come to me wanting a report where both sides can see exactly what the mortgage capacity abilities of both parties are. It’s very transparent.
What information will you need to provide?
The information is similar with all of them. There are basic personal details – name, date of birth etc., then your income and expenditure. Because it is just purely looking at your affordability, it will look at how much you earn, your current credit commitments.
If you have any dependents, the report will state how many people are dependent on you and their ages. We’re able to work out how much you can borrow using that information. We also would be looking at your age because it can impact the length of a mortgage and therefore how much you can borrow. If you only can borrow for five years, it shrinks the loan amount.
We’d be looking at the dependents’ costs, maintenance costs you’ve agreed to, any credit commitments and pension contributions. We present it all in an easy format for the court to read. They then know exactly what the information is representing in a standard way.
How much does a mortgage capacity report cost?
It depends on who you go to. We charge £200 for a single and £360 for a joint mortgage report. They’re just our pricings. It does depend on who you’re going to and also the complexity of the situation.
Like most things, you get what you pay for. If you want a quick report, you will pay a little bit more, while if you want it to take weeks and delay everything into court proceedings you can probably find one very cheaply. It’s also worth thinking about whether you want to be able to ask further questions.
You’d always get a quote before you engage anyone’s services – or your solicitor usually does.
What are the pros and cons or the benefits and disadvantages of a mortgage capacity report?
It simplifies court proceedings, so they’re able to see exactly how much your potential borrowing capacity is and make their financial judgments based on that.
That’s the main benefit of it. You’re getting accurate advice so you have reassurance, and so do the solicitors and courts. It also minimises the arguments back and forth from each party because they both have what each person is able to borrow in black and white. It makes divorce proceedings go more smoothly and makes a very difficult process that little bit less stressful for everyone involved.
The only real downside is that you’re having to present this information to an advisor and pay a small fee. It puts you in such a strong position when you are going through court proceedings. If a divorce case goes to court, it is a mandated requirement to be able to see how much everyone can raise their capacity.
How can someone get a mortgage capacity report? How can a mortgage broker help?
Not all mortgage advisors do mortgage capacity reports. Some don’t know that the court requirements have changed, and they will end up producing just a Decision in Principle.
I’ve seen one person who went to a mortgage advisor and had an email just stating that they were able to borrow £200,000 – he paid money for that. So you need to go to an advisor that is au fait with doing mortgage capacity reports. They know the format.
Make sure you’re going to one who is literate in what a court is looking for. Usually your solicitor will have links with different advisors who are able to produce them. Or alternatively, a quick Google search in your area will show you advisors who do these reports – it is usually stated on their websites.
This is a relatively new area of finance – it has only come up in the last year as a court requirement.
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