Case Study: Mortgage for Home Mover in Farnham After Divorce

Introduction

Our customer wanted to purchase a new home in Farnham following a divorce. They had substantial equity available from the sale of their previous property and required a relatively small mortgage to complete the purchase.

Their main objective was to repay the borrowing over five years while avoiding unnecessary upfront lender fees.

Our customer wanted to use equity from the sale of their previous home towards the purchase of a £340,000 property. They only needed to borrow £40,000 but wanted to repay the entire mortgage within five years.

The challenge was finding a lender that would accommodate such a short repayment term while keeping the overall borrowing costs low. Our research and discussions highlighted the right lender, we arranged a five-year fixed-rate repayment mortgage with Coventry Building Society, allowing our customer to purchase their new home without paying a mortgage product or valuation fee.

The Scenario

Our customer was moving home following the breakdown of their marriage. They had previously owned a property without a mortgage and were using their share of the equity from its sale to purchase a new home independently.

They were employed full-time and recieved reasonable income.

The property they wanted to purchase was a mid-terraced house in Farnham, valued at £340,000. With £300,000 available from their previous property, they required a relatively small mortgage of £40,000.

Mortgage Details

Our customer had a clean credit history, with credit card balances cleared each month.

Their priority was to keep the mortgage manageable within their budget, avoid unnecessary upfront lender charges and become mortgage-free within five years.

The Challenge

Although our customer had substantial equity and only needed a small mortgage, the combination of a short repayment term and their specific product requirements made lender selection a key part of the decision.

Finding a Lender Offering a Five-Year Mortgage Term

Our customer wanted to repay the full £40,000 over just five years rather than spread the borrowing over a longer period.

A shorter mortgage term means the outstanding balance reduces more quickly, but it also increases the required monthly repayments compared with a longer term.

We therefore needed to identify a lender willing to offer a five-year repayment term while ensuring the repayments satisfied their affordability assessment.

Keeping Mortgage Fees to a Minimum

For a relatively small mortgage, product fees can make a significant difference to the overall cost.

For example, a £1,000 product fee represents 2.5% of a £40,000 mortgage before taking any interest into account.

A mortgage offering a lower interest rate but charging a substantial product fee would not necessarily represent better value over five years.

Our customer also wanted to avoid paying product and valuation fees from their personal savings.

Providing Certainty Following a Divorce

Our customer was also managing the financial and personal changes associated with separating from their former partner.

They wanted certainty over their mortgage repayments and a clear date by which the borrowing would be repaid.

This meant finding a mortgage that met their financial requirements without introducing unnecessary costs or uncertainty during their move.

What We Did

We carried out a whole-of-market mortgage review, concentrating on lenders that could accommodate the relatively small loan amount and five-year repayment term.

Rather than simply comparing headline interest rates, we assessed the overall borrowing costs across the full five years.

Comparing the Total Cost of Borrowing

We researched mortgage products with no arrangement or product fees and no valuation charges.

This was worth considering because our customer intended to repay the mortgage over a short period, leaving less time for any saving from a lower interest rate to outweigh an upfront product fee.

Our comparison focused on the combined cost of the mortgage interest and relevant lender charges over the planned borrowing period.

Checking the Lender’s Requirements

We reviewed lenders’ minimum loan amounts, permitted mortgage terms and affordability requirements.

We also contacted the lender and its Business Development Manager before submitting the application to discuss the circumstances and confirm the proposed mortgage structure was suitable for consideration.

As part of our review, we verified our customer’s employment income and the equity distribution from the sale of their previous marital home.

This helped establish that the proposed mortgage amount and repayment arrangements were supported by their financial circumstances.

Selecting the Mortgage

We found a suitable five-year fixed-rate repayment mortgage with Coventry Building Society.

The product had no mortgage product fee or valuation fee, addressing our customer’s preference to minimise lender setup charges.

Importantly, the five-year fixed-rate period matched the five-year mortgage term. This meant our customer could plan their repayments without having to arrange another mortgage product during the term, provided the mortgage continued as agreed.

The Solution

Coventry Building Society provided the mortgage structure our customer was looking for.

The £40,000 repayment mortgage was arranged over five years, with a fixed interest rate for the entire term.

The lender’s product also avoided the arrangement and valuation fees our customer had wanted to minimise.

The combination of a short repayment term, fixed monthly repayments and no product or valuation fees made this a suitable choice based on the overall costs we had compared.

By the end of the five-year term, the mortgage balance would be fully repaid, provided all scheduled repayments were made.

Why This Solution Worked

The main advantage was that the mortgage matched our customer’s financial plans rather than requiring them to compromise on their preferred repayment period.

Their substantial deposit meant they were borrowing approximately 12% of the property’s value, and the mortgage amount was modest relative to their employment income.

By comparing overall borrowing costs rather than focusing solely on interest rates, we identified a product that met their requirements without unnecessary lender fees.

The fixed-rate structure also provided predictability at a time when our customer was establishing a new household and managing their finances independently.

The Result

We arranged a five-year fixed-rate repayment mortgage with Coventry Building Society, allowing our customer to purchase their new home in Farnham with a short repayment term and no product or valuation fees.

The mortgage provided a clear route to becoming mortgage-free within five years, helping our customer move forward with greater financial certainty following their divorce.

What This Case Shows

This case demonstrates why the lowest advertised mortgage interest rate is not always the most cost-effective option, particularly when borrowing a relatively small amount.

For customers requiring a short-term mortgage, fixed product fees can have a disproportionate impact on overall borrowing costs.

It also highlights the importance of checking lender requirements where a customer wants to repay their mortgage over an unusually short period.

By considering affordability, mortgage term, product fees and overall costs together, we were able to recommend a mortgage suited to our customer’s particular circumstances.

Need Mortgage Advice Following a Divorce or Separation?

If you are buying a property following a divorce or separation, we can help you understand your mortgage options and assess how much you may be able to borrow.

At Kerr & Watson, we provide independent, whole-of-market mortgage advice, including mortgages for customers using equity from a previous property or looking to repay their mortgage over a shorter term.

Contact Kerr & Watson to discuss your circumstances and find out how we can help.