Mortgage Interest and Income Support: the State Gets Tough.

The judgment in the case of Secretary of State for Work & Pensions v Neera Mohammad[2011] EWCA Civ 1358, handed down on 23 November, serves as a timely warning for divorcing spouses.

The case involved a Wife who had secured, within divorce proceedings, the transfer of the family home into her sole name. There was a mortgage on the property, taken out by the Husband when the property was held in his sole name, and though it was unclear how he had spent the money raised it was certainly not used to acquire the property.

At the time of the divorce the Wife was on Income Support. She had to give the Husband the usual binding promise to pay the mortgage and indemnify him against any losses. She was unable to refinance the mortgage.

She applied for help through Income Support to pay the mortgage and was initially refused help. She successfully appealed that refusal. SSWP then appealed that decision.

The court held that the wife’s claim failed on two grounds:

1. She was not legally liable for the debt. It was still the Husband’s debt, and although if she defaulted she would be liable to the Husband under her promise, the crucial liability was that of the Husband to the mortgage lender. Therefore on this ground alone she would be refused help.

2. Had she been able to refinance the loan, she would have fallen foul of the provisions denying mortgage help to those who took out a mortgage when entitled to Income support. She could not argue that for the purpose of this rule the date of taking out of the mortgage should be when the Husband took it out.

Had she not been in receipt of Income Support, and been able to refinance the whole of the mortgage to repay the existing debt, would that new mortgage have qualified for assistance, as it would have been used to acquire for the wife an interest in the property? Not according to AH v SSWP[2010] UKUT353(AC), which was referred to in the present case. In that case the wife refinanced an existing mortgage to pay off the old mortgage in the Husband’s sole name. She could only claim that part of the new mortgage that related to the loan that originally bought the property, and not the extra to cover the additional borrowing of the Husband after separation.

One wonders whether a court order drafted to read that a Wife would pay the Husband a lump sum, and in consideration for that he would transfer the property to the Wife, would meet with more success (the loan taken out by the Wife clearly being to fund the consideration for the purchase of the property). The usual orders that simply provide for a transfer of property and undertakings to indemnify should perhaps now be a thing of the past where there is a suggestion that not all of the existing mortgage related to the acquisition cost, and it is certain that the recipient of the property will be able to secure new finance.

Andrew Lee

Andrew is a Collaborative Family Lawyer, and a Senior Associate Solicitor at Gregory Abrams Davidson.

To contact: Tel 0151 236 5000/ 0151 330 0734: alee@gadllp.co.uk