Rising house prices and tougher lending rules will kill home-ownership for divorcing couples in 2022, experts have warned.
Lawyers and mortgage brokers have told OneRoof that warring couples are finding it increasingly difficult to make a clean break, and that many are finding themselves locked out of property ownership or at the mercy of the other party.
Covid has also piled on the pressure, driving couples to split, then severely reducing their ability to buy out a former partner or buy another home.
Divorce lawyer Jeremy Sutton says the fact that salaries have not kept pace with house price inflation has exacerbated the situation.
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When they split, couples who may be paying down a mortgage, find themselves at best with sufficient money to buy only half a house. Many are left with too little for a deposit in their current location.
Convincing the bank they can service the mortgage on the other half of the family home, is one of the main issues, thanks to changes to the Credit Contract and Consumer Finance Act (CCCFA) which took effect in December.
Under the new CCCFA, banks are putting the spending habits of mortgage applicants under the microscope and are no longer basing their decisions on how much an applicant earns. That is likely to make it harder for separating couples.
Mortgage broker Campbell Hastie, of Hastie Mortgages, says: “The CCCFA really hurts the lending prospects of at least one of the parties of a divorce - usually the wife.”
In the case of divorces where a third party is involved, a new couple may have joint resources to buy a new home, leaving the spurned partner out in the cold.
House prices have shot up in the last two years, putting pressure on those who have reduced to a single income. Photo / Fiona Goodall
Divorcees aged over 50 will find it doubly hard to qualify for a mortgage, says Hastie. “[Banks] don't want to lend to people where a loan term finishes when they're 88."
In many divorces, the lower earning partner can end up living in inadequate accommodation. Hastie cites as an example a couple that split two years ago, before the housing market boomed. The couple owned a nice home that sold for $800,000, but after the mortgage was paid off the wife could only afford to buy a one-bedroom apartment.
That then caused further issues. “The bank was saying, ‘Well, where's the child going to sleep’?” says Hastie. In that case, the lounge was able to be converted to a bedroom.
January and February are the months when lawyers, mortgage brokers, and other professionals, start fielding higher numbers of calls from divorcing couples. “This is the time of year when people decide to do it,” says Hastie. “I 'm actually expecting these kinds of phone calls in the next month. They might have been thinking about it for some time. But they get through the Christmas turkey and they go, ‘You know what, I actually don't want to be married anymore.’”
Sutton says that divorcing couples will need a good dollop of goodwill if they want to keep their home or buy a new one in the current housing market.
Experts say separating couples will need a dollop of goodwill to navigate the housing market. Photo / Ted Baghurst
One such creative solution is “birdnesting” as a temporary option, says Sutton. "This is where the children remain in the home but the couple take turns in coming back. It’s not for everybody but in some cases, it occurs when there is a trial separation,” he says.
“Where there is an upstairs downstairs aspect to the property one party can live upstairs with the children for some of the time in the other party downstairs, if the pair can tolerate each other for a period of time.
“Another option is where there is a minor dwelling or rental property, one party may choose to live in that property short-term.”
Some couples manage to agree to the other party remaining in the home for a set period, such as three years, says Sutton. Both parties continue to co-own it.
Where neither can afford to buy out or rebuy, some couples keep the property and rent it out, which may provide some income and capital gain and keeps both parties with a foot in the property market. A legal agreement can deal with issues such as cross collateralisation, which could otherwise leave separated couples responsible for new debt taken out by the other.
Both Sutton and Hastie recommend taking advice early in the process before pulling the trigger and splitting. Sutton says: “This is a very difficult time. You need your personal and your professional support." That can include family, friends, lawyers, accountants, and mortgage brokers.
Divorcees do sometimes play games over the house. LJ Hooker Manurewa licensee Dylan Turner has seen all the ploys when one party doesn't want to sell – often the man. That might be: “It’s too sunny for viewings” one day, and “It’s too wet” the next. Or there is vindictiveness over prices when one partner wanted to sell to the other for a higher price than the market would fetch.
Choosing an agent that can work for both parties is really important, says Turner. “Don’t go with a friend or the uncle. You’re better off with a neutral party.”
Sutton says it’s t aking a year currently for divorcing couples to get a day in court, which means many are accepting mediated settlements instead. An increasing number are using online platforms such as Agreeable.co.nz, launched by former Solicitor-General Michael Heron QC, to come to draft and agreement between them.
