Partner James Pirrie comments on treatment of child support by mortgage lenders

Partner James Pirrie was recently quoted in an article by SavvyWoman on the treatment of child support by mortgage lenders. The piece was quoted by the Independent on Sunday and covered by Radio 4’s MoneyBoxLive. It also featured in Moneysavingexpert and on the BBC News Channel. The article is set out below:

Mortgage lenders must end this child support muddle, says SavvyWoman.co.uk

SavvyWoman.co.uk contacted thirteen of the UK’s leading mortgage lending groups and found there was little consistency in their approach when deciding whether or not to lend to customers who receive child support. Some mortgage lenders only take a percentage of child support into account when assessing income, at least two lenders ignore it altogether, and others insist that a court order or CSA/Child Maintenance Service plan is in place.

Last year, child support was paid to support over a million children. Official CSA figures show that, in 2012, almost 150,000 families reached an agreement to pay child support informally, something the government is trying to encourage more parents to do as the Child Maintenance Service takes over from the CSA. If lenders continue to insist that an official maintenance plan is in place, it could affect thousands more borrowers.

SavvyWoman.co.uk contacted thirteen of the UK’s leading mortgage lending groups and found:

• Two lenders didn’t accept child support payments as part of a borrower’s income at all, and one not as a general rule.
• Two lenders only accept a percentage of child support income (in one case as little as 50%)
• Six lenders insist on a court order or CSA/CMS payment order or similar
• Only five accept child support as income without a court order or official CSA/Child Maintenance Service payment plan in place

Sarah Pennells, Editor of SavvyWoman.co.uk, says:

‘Mortgage lenders simply aren’t keeping up with the times. The fact is that almost 120,000 couples get divorced each year, and many thousands of relationships break down. Of these, numerous will result in the payment of child support. When couples apply for a mortgage they expect to stay together, but if a relationship breaks down and child support is required, a woman – or man – receiving child support could find they are not able to take over the mortgage. If remortgaging, they must be careful about the new lender they apply to.

Mortgage lenders that ignore child support or restrict how much is taken into account may say it’s because these payments aren’t guaranteed and they need to check the support is due to be paid for several years, but few jobs come with a guarantee these days. Mortgage lenders must make sure mortgages are affordable, but should also understand that the income of divorced women – and men – may include child support.”

SavvyWoman.co.uk is calling for mortgage lenders to:

• Be clear about their policy, and publish this information so borrowers know the lender’s approach before they sign up for a mortgage
• Review how they treat child support if they don’t currently count it as income or only include a percentage of it
• Reconsider their approach in light of the government’s extension of the work of the CMS in December and, by definition, its encouragement of parents to come to informal arrangements

The family law organisation Resolution is supporting SavvyWoman in highlighting this issue and is calling on lenders to take a consistent approach. Nigel Shepherd, spokesman, says:

“Resolution members are family law professionals committed to helping separating couples agree financial arrangements between themselves wherever possible. We would want lenders to be consistent and support this objective. Privately agreed child support payments should be accepted as relevant income rather than requiring parents to go to the CMS, which risks creating unnecessary conflict and will cost parents when in due course planned charges for using CMS come in. ‘

Nigel Shepherd continues. ‘If it’s in the interests of the children to stay with a parent in the family home and this means that parent taking over responsibility for the mortgage, anything that mortgage lenders can do to avoid putting barriers in the way should be welcomed.”

Leading mortgage expert, Ray Boulger of brokers John Charcol, says mortgage lenders are being illogical:

‘As Government policy is to encourage the parties to come to a private arrangement for maintenance payments, a policy being reinforced by the CMS under plans to impose charges on both parties when its services are used, it is illogical for lenders to discriminate against applicants who are able to agree terms for maintenance without involving the Court or the CMS. However it is sensible for a lender to require to see the private agreement between the parties setting out the terms of the maintenance payments, plus a track record of regular payments, which can be proved by the applicant providing bank statements for, say, 6 months, to satisfy themselves the arrangements are robust. This should also be adequate to satisfy the regulator, The Financial Conduct Authority, as well as the lender.

‘Furthermore, rather than restricting acceptance of maintenance payments to only 50% or 60%, as some lenders do when calculating affordability, once the principle is established there is a strong argument for not only accepting 100%, but going further and grossing up the payments in view of the fact that maintenance payments are tax free. Maintenance payments are only likely to be reduced or temporarily cease if the payer loses their job, i.e. exactly the same risk of any mortgages generally, which are based on earned income.”

While divorce lawyers say that an existing mortgage is increasingly being seen as a valuable ‘asset’ in financial settlements. James Pirrie, partner and child support specialist with leading family law firm Family Law in Partnership, says:

“I have found increasingly over the last couple of years that settling divorce cases is not about the assets, but about who gets to keep and benefit from an existing mortgage because it is so hard to secure replacement borrowing. Those going through separation and divorce are often completely unprepared for how the mortgage market has changed. Government policy aims to encourage those seeking to make an application for child support into settling their own arrangements, however these ‘family based arrangements’ are non-binding.”

The Child Support Agency (CSA) is a delivery arm of the Development for Work and Pensions. From December 2012, its work is gradually being replaced by the Child Maintenance Service, and from the end of the year it will start taking on existing cases (although a final date hasn’t been set).

For more information, visit the SavvyWoman website.