For solicitors
When to obtain a mortgage capacity report in financial remedy proceedings
Timing is the thing most often got wrong. A capacity report obtained too early is built on facts that have not settled; one obtained too late arrives after the negotiating position has already been taken.
By Jonathon Mark Turner CeMAP, Mortgage Capacity Specialist ·
The default position: before the First Appointment
The Financial Remedies Court expects the parties to file brief indicative material as to their respective borrowing capacities in advance of the First Appointment, and expects that material to be jointly obtained where it is possible to obtain it jointly. Where joint instruction proves impossible, each party obtains and files their own, and should be able to explain to the court why joint instruction could not be achieved.
Two practical consequences follow, and both are frequently missed.
First, this is not expert evidence in the Part 25 sense. It is part of the standard First Appointment material. That is why capacity reports are routinely commissioned without any court order, and why the permission requirement under FPR 25.4 is not usually engaged. It also means the fee is not automatically caught by the court’s power to limit the cost of expert evidence — though a proportionate, clearly-quoted fee is still the right answer.
Second, the joint expectation is a real one. Turning up at the First Appointment with a unilaterally-obtained report, when the other side could have been asked to share the instruction, invites the obvious question. Where you cannot agree a joint instruction, record the attempt.
Too early
A capacity figure is only as good as the facts underneath it. Before the following are reasonably settled, a report is likely to be misleading rather than useful:
- Where the children will live, and with whom. The number of dependants a lender counts, and the childcare cost it deducts, can move a capacity figure by tens of thousands of pounds.
- Whether maintenance will be paid, at what level, and for how long. Maintenance received is often only counted where it has a reasonable remaining term, and maintenance paid is nearly always deducted. An assumed figure produces an assumed answer.
- The likely capital position. Deposit or equity drives loan-to-value, and loan-to-value drives both availability and, in some cases, the affordability stress applied.
- Whether either party’s employment is about to change. A report modelled on income that ends in three months is worth very little.
Where those matters genuinely cannot be settled, the answer is not to avoid the report. It is to ask for the analysis to be run on the two or three outcomes actually in contention, so the court can see the effect of each rather than one figure resting on a contested assumption. Say so in the letter of instruction and we will confirm the scope and the fee before starting.
Too late
The point of the report is to inform the negotiation. A report that arrives after positions have been exchanged tends to be read as supporting whichever position was already taken, and it loses much of its value.
Practical deadlines to work back from: the filing requirement in advance of the First Appointment; any FDR listing, where the report is often the single document that moves a case; and, if the matter is going to a final hearing, the deadline in the directions order for filing evidence.
Shelf life: three to six months
Treat a capacity figure as reliable for roughly three to six months. Three things move underneath it: lending criteria, which change continually; the interest-rate environment, which drives the stress rate applied in affordability calculations; and the party’s own circumstances.
This matters most in the gap between an FDR and a final hearing. A report prepared for an FDR in March is not, without more, evidence of capacity at a final hearing in November — and if the other side spots that before you do, the point is made against you. Where the underlying facts have not changed, updating an existing assessment is a good deal less work than a fresh instruction; tell us and we will confirm what it involves.
A working timeline
- Pre-application or early in proceedings. Identify whether rehousing is in issue at all. If the case will turn on whether either party can retain or acquire a property, a report is going to be needed.
- Once care arrangements and the broad maintenance position are reasonably clear. Propose a joint instruction to the other side in writing. Agree the questions and the scenarios.
- At least two to three weeks before the First Appointment. The assessment itself is quick — a draft within three working days of receiving complete evidence — but assembling the evidence is not, and the draft needs time to be checked before the filing deadline.
- Before an FDR. Check the report is still current. If it is more than about four months old, or a material fact has changed, have it updated.
- If the matter proceeds to a final hearing. Consider whether the court is going to require formal expert evidence on capacity, in which case a Part 25 report is the right document.
Where a report is not the answer
If neither party is going to buy, retain or re-mortgage a property, a capacity report has nothing to bite on. And if the only question is whether a specific lender would lend to a specific person on a specific product, that is a mortgage application, not a capacity opinion — and it needs an FCA-authorised adviser, not us.