Nil capacity: evidencing that a party cannot borrow

What a nil capacity finding is being used to prove

Usually one of three things: that a party cannot rehouse themselves without a greater share of the capital; that a Mesher or similar deferred arrangement is unworkable because the party could not raise the money at the trigger point; or that a proposed settlement requiring one party to buy the other out simply cannot be implemented.

In each of those, the nil finding is doing heavy lifting. It is not a formality and it should not be produced as a one-line letter.

Why nil findings get attacked

Four lines of challenge come up repeatedly.

1. “You only looked at high-street lenders.” Where a party has adverse credit, irregular income or an unusual employment position, the mainstream market may decline while a specialist lender would consider the case. A nil report that has not addressed that has a hole in it.
2. “You assumed the wrong term.” Where age is the binding constraint, the assumed retirement age matters enormously. If the report assumed retirement at 60 and the party could work to 70, the answer may not be nil at all.
3. “You ignored deposit.” Capacity to borrow nothing is different from capacity to buy nothing. A party with no borrowing capacity but a substantial capital share may still be able to rehouse. The report should distinguish the two clearly.
4. “It is nil today, but the question is at the trigger date.” Where the relevance is a deferred charge or a future sale, a snapshot of today’s position answers a different question from the one being asked.

What a nil capacity conclusion should contain

• The same analysis as a positive report. Income, commitments, dependants, maintenance, term, age, deposit, credit position and property assumptions — all set out, not abbreviated because the answer is zero.
• The binding constraint, identified. Is it income? Term and age? Credit? Employment status? A nil finding without a stated cause is an assertion.
• The breadth of the market considered. Whether the conclusion holds across the lending market generally or is confined to mainstream lenders, and if the latter, why.
• What would change it. The most useful sentence in a nil report is often the one that says what would have to be different — a longer term, a clearing of a particular commitment, twelve months’ payment history on a maintenance order — for the answer to stop being nil.
• Whether it is nil now or nil at a stated future date, and if the latter, on what assumptions.
• The distinction between borrowing and buying. If the party has capital, say what it would purchase without borrowing.

Nil capacity and Mesher-type orders

Where the question is whether a party could buy the other out at a future trigger event, a present nil finding is only part of the answer. What is being asked is whether capacity will exist at the trigger date, on assumptions about the party’s age at that point, their likely income, and the term then available to them.

That is a forward-looking opinion and it should be framed as one, with assumptions stated and their sensitivity flagged. A party who is 52 now will be 62 at a trigger ten years away, and term will almost certainly be the constraint by then, whatever their income does.

Why we do not sell a cheaper “nil capacity” product

Because whether a party can raise borrowing is the conclusion of the assessment, not something to be decided before it starts. A product priced on the basis that the answer will be nil has, in effect, selected its own outcome — and a solicitor on the other side is entitled to say so.

So a nil finding is charged at the standard fee and gets the standard work: the same affordability modelling, the same stated assumptions, the same reasoning. If, having done it, the answer turns out not to be nil, we say so and issue the report the evidence supports. The instruction determines what is examined; it never determines what is concluded.

See what the report contains, a specimen report, and the fees.