Relationship break up - what to do about our mortgage

B_Real_2

Hi Savers,

Another post about a relationship break up. Did search the site, but each case is different I guess.

Situation: Been with OH for 7 years, not married, no kids, bought a flat in Edinburgh at the start of summer 2005. Still living together and amicable, but we've decided our futures are going in different directions.

Its a joint mortgage for £108k (property value £120k), her mother is guarantor, we've been paying all mortgage payments 50/50 since the start. £12k deposit split equally too. OH is a phd student, and therefore paid peanuts. I'm on around £31k pa, good credit history. We both want whats best for us both financially, and happy to discuss options.

I see our options as: I buy her out, she buys me out, or keep flat as joint investment. I guess my questions relate to how the buy out's work, and who is in the better position to buy who out, and what kind of lump sum, if any, could one of us expect from the other?

BUY OUTS:
If property is valued at say £140k now - would that mean a payment of roughly:

Difference between mortgage & valuation, divided by two (people) : £140k - £108k / 2 = £16k
Plus: whatever mortgage payments since the start, say around 8k each (based on around £700 monthly payments over 44 months, less interest payments; ball park figures for now).
What else should we be looking at - potential value of property in the future given current economic climate?
Would a £20k lump sum be a ball park figure for a buy out?
What happens to current mortgage - we are on tracker @2% above base, so really benefitting just now, would be keen to keep that but I fear a buy out would mean a completely new mortgage?

WHO IS IN BETTER POSITION:
She lives on grants for her phd that amount to around £14k pa. When she graduates in a years time she will do post doctoral work where she will jump to around £20k. Don't think she can afford to keep the place on her own, but with her mother guarantor and likely willing to help her out, she could make it work. Her mother could probably buy me out relatively easy.

Me on £31k - I could probably afford to take full ownership easier than she could on her own, but I don't know where I would get the cash to buy her out - would my current lender look upon me favourably in terms of taking on flat / loan to buy her out?

Guess my first steps are to get valuation of property, then speak to mortgage advisor?

Conrad

I'm a little confused.

At the start of the post you say the value is £120k, then later mention £140k/

The principle in any event is that only the earner will be able to remortgage into sole name.
The equity based on true market value is then notionally divided 50/50. In other words you will pay your partner 50% of the equity.

As for where to get the cash, well that is not anything to do with your lender. If you want to buy her out and your partner wants the cash then its up to you to find it from somewhere, or your partner could be well advised to reamin on the Deeds (thus on the mortgage Deed to).

From the info you give and assuming the £120k value, it is unlikely remortgaging to another lender is a viable option, in which case a transfer with the same lender is required, but they will probably retermine the rate will be based on todays ltv (value)

Best of luck

Robert_Sterling_3

I think on day one there was a £108,000 mortgage on a house costing £120,000. Hence the £6,000 each towards the difference.
The house value now is assumed to be £140,000.
This needs to be checked.
Consideration needs to be given to the falling market value.
The equity depends on the market value and the outstanding balance of the mortgage.
.............................................................................................................................

It is good to hear that the couple are on very amicable terms.
However I think each of them should work out separately what they would like to do and make an offer to their partner.

The OP might say I would like to buy you out for £20,000.
The partner could then say well i would be willing to buy you out for £25,000
and so on. Clearly the highest offer does the buy out.

Each partner working amicabley but in what the see to be their own best interest.

getmore4less

Your calcs don't look right.

If you have been paying 50:50 on the mortgage and the deposit you can ignore these.

I would base the buyout on a sale since that is what happens if niether one of you can get a loan to cover the costs.

So sale price, less costs, less mortgage you get 1/2 each of whats left thats the buy out cost either way.

You then need to raise/transfer a mortgage, how big that will be will depend on how much money you have.

Keeping it as a joint investment is risky(new partners, falling market etc ) as is delaying any buyout payments if you cannot aford to raise the cash needed.

Clean break is the way to go.

As part of an amicable split you need to agree a sale value and what the costs to sell would be this can be the hard part especialy if the value has fallen below the £120k you paid.

If you cannot agree then it becomes sell time

Key is do either of you actualy want the place? if not why keep it short tern it will lose money better to sell and buy something you do want later when the market has fallen.

edit:
Unless you realy want the place, I would consider letting them have if the OH and mother are prepared to take this on(allyjough it may not be that easy for them to take on the mortgage)
what is the market like, is stuff selling? this will give you a gage of how much to hold out for, no point in chasing the market down while trying to get an extra few £1k

B_Real_2

To clarify calculations, Robert_Sterling is right: We bought the place for £120k, with £12k deposit and £108k mortgage. £140k is rough estimate of what I think the value could be now, based on recent sales in the area, inflation since 2005 and recent deflation over last year or so - arbitrary figure really for the sake of example, I understand that this figure will depend on a valuation and will change.

From the OH point of view, as a student and not likely to be earning a great deal over the next 5 - 8 years, she probably want's to keep the property as an investment more than I do, using her mother as guarantor. This is her long term investment / pension almost. Its in the center of Edinburgh, value will go up long term.

From my point of view, its what the buy out figure would be which would determine whether or not I want to sell out or keep as investment. If I can get anything that resembles a deposit for a new place (20k say) then probably in my interest to sell out, start fresh and move on with my life. But if I can only get say 5k, or less, then its not worth selling, and more in my interest to buy her out at that kind of figure, and I guess this is where it becomes tricky, as she wont want to sell at that either.