Many years ago we were asked to do a mortgage capacity report by an existing customer…
I asked what it was! I had never heard of it before.
7-8 years on and we do them fairly regularly now. I write this post on the back of looking at the original report we did. It was terrible and I am amazed it was accepted by the courts.
Over the first few years, we received feedback from solicitors and that has helped us to shape these reports to something that is now accepted more or less 100% of the time. Occasionally we need to make slight tweaks but that is usually down to the customers situation rather than having anything fundamentally wrong.
Requirements of the capacity letter
The letter is written for the benefit of the courts. Under Part 25 of the courts procedure rules, our obligation is to the court.
The report needs to include:
Income – For this we need to know about all of your income. Some lenders may not accept all of your income (certain benefits for example) but that is our job to work out what can and can not be used.
Commitments – Generally speaking most commitments are cleared as part of the divorce. However there may be ongoing commitments – maintenance, childcare etc. There are times that we may need to include with and without maintenance if that part of the divorce is still to be agreed.
Your credit history may be taken into account if there are problems there. As this may impact not only the amount you get but the monthly repayments.
Your deposit or expected deposit.
Once we have these we then need to provide a minimum of 2 figures:
- A maximum figure on a repayment basis along with the monthly repayments.
- A maximum figure on an interest only basis along with the monthly repayments.
There are other things but this covers off the main points.
What is not included?
Your general expenditure. We used to ask customers to complete this. However we always found that people would artificially inflate these figures to the point where you had to wonder if someone was running a sun bed 24/7 in their spare bedroom!
The straw that broke the camels back on this was a customer who used up every penny of their income including £12k a year on holidays! After that we just took that section out of the factfind as it was clearly made up. They were due to spend more on food as a single person than they did as a family of 4.
Summary
This letter is written for the benefit of the court. We can sit there and take what people say as gospel and if that is what you want, its probably best to find someone else to write the letter. If something looks wrong, we will talk to you to discuss it. There are occasions where things are outside of the norm.
We had a customer who planned on retiring at 55 – we queried this. We queried it because the other side would likely query it and the last thing we want to do is to have to do another letter (and charge for it) because they were not happy with the original letter.
In this example, the customer had a life limiting medical condition and early retirement was extremely likely.
Its not our job to just write the letter. Its our job to try and pre-empt any problems with the information provided. If we think the other side might dispute it, we will talk to you about it and then agree how to move forward.
All of this takes time and 8 years experience comes in handy especially in helping you to avoid further costs or duplicating work.
We charge £199 for our mortgage capacity report. There is no VAT and this is the same price we have charged since 2020.