Transfer of equity after break-up, but it's tight...

Mewcenary

Hi,

I recently split from my partner. We have a joint mortgage. She has moved out. She has stopped paying 'her' share of the mortgage.

She invested the 10k deposit into the deposit. However, we are still in negative equity at this time, to the tune of about 6k.

I have looked into a Transfer of Equity with Nationwide. They are fine with this and I have passed the initial checks, but of course until they do it 'for real' they can't give an answer.

As part of this, I would be offering my ex her 10k deposit back.

I'd be taking out a loan (£200 PCM, 5 years) to do that. I've discussed that with Nationwide and they are okay with it. They can't roll it into the mortgage as it is a default NO answer due to the negative equity.

The thing is, this makes things a little tight. Having run the numbers, I'd be looking at £200 PCM 'spending money' (including groceries). That isn't much when the usual little emergencies like car problems come up.

One option I have would be to stop paying into my pension. This would free up £200 PCM, but of course the usual caveats of not paying into the pension apply!

I could also take on a lodger (circa £350-400 PCM income in area) but this is naturally no guaranteed, and I can't do anything until transfer occurs.

However, the mortgage repayments will drop in February by £200 or so, when we move off Fixed and onto the current interest rates. There is also a lock-in period until then, early redemption penalty.

I'm not attached to where the house is, as it was a compromise location due to our work locations. I am 40 minutes drive from where I work, which I appreciate is not the end of the world, but spend circa £350 PCM on fuel.

Of course, selling is difficult... negative equity plus ex gets really nasty about the idea of her not getting any of her 10k deposit back, and I can understand how she feels on that one.

Any general advice on this one from your experiences?

Thanks,

Tris.

Cannon_Fodder

Don't know why you or she thinks that her deposit should go back to her. She made an investment decision, and now that investment is making a loss.

If you sold, the money received would have to clear the outstanding mortgage, and you would be left to repay the £6k shortfall, i.e. £3k each...

...so she should be saying "thank you" to you, for saving her from finding her £3k share of the shortfall, rather than moaning about £10k that no longer exists.

If she wants to remain an interested party in the future value, which may over time (who knows? 3 to 7 years?) manage to recover to its previous level, then she needs to maintain her payments towards it.

From what you have said about tight finances, not having to raise the loan will help you take over the property - and may in fact be essential, because although Nationwide say they are ok with it now, that might not be the case when it is put through "for real"...

You could offer a compromise, without an immediate loan that jeopardises your transfer mortgage, where you will over time give her the £10k back, based on her patience in waiting for prices to recover/your ability to re-mortgage to get money out of regained equity.

Mewcenary

I completely take your point. Her initial investment has less than zero value due to the negative equity situation.

I did try that approach initially ("I'm actually saving you money because...") but you can probably imagine her reaction. It was a 'one-time' gift from her father combined with it being me that ended the relationship...

I'm not sure what the other option are. I'd obviously want to avoid stopping paying + repossession for obvious reasons. But just how expensive is forcing a sale through the courts etc likely to be? And of course all this time she would not be contributing but still be entitled to her share of the house... nice....

I have a solicitors appointment on Wednesday to run through the options in general.

Mrs_Bumble

I agree with the above.

If your ex wants to be removed from the liability of the mortgage then she should be more realistic about what her investment is worth currently.

I don't see why she should have the whole of the deposit back as you went into a joint venture and I presume that you have both been contributing to the monthly mortgage and household expenses?

Did she protect her initial investment with a legal agreement?

If she wants off of the mortgage which I assume is top of her list as it will prevent her from obtaining another mortgage then making the transfer of equity tight by you raising a loan seems daft?

See what the solicitor says, but if you are willing to take on the whole debt now even though there is negative equity then I think a more realistic approach is needed from her if she wants to walk away.

If she has a legal right/insists on the £10k can't she wait until there is more equity in the property, by assuming the total debt you are indeed doing her a favour.

See what the legal advice is, I personally wouldn't be in any hurry to take a personal loan on regardless of whether you were the one to end it or not? No point in putting yourself financially under pressure just because you might feel a bit on the guilty side now because that will pass

Mewcenary

Thanks for the reply.

There is no legal right. There was a Declaration of Trust, but that simply states she is entitled to the first 8% (approx) of equity upon a sale (to reflect her deposit), before the rest of the equity is split between us. That split is 2/3 to me and 1/3 to her to reflect differing contributions to the mortgage.

Yes, we were jointly contributing to household expenditure and so on.

Mewcenary

By the way, how would you calculate how much her deposit would be work? Drop it by equal % that the house value has dropped based on average of valuations?

KarenBB

Re the value of the house at the moment - you could ask nationwide what they show the value of the property as in their system. A friend recently spoke to Nationwide and they were discussing the current LTV of the property and Nationwide had a figure that they would use. The figure they have is taken from the original valuation and then updated from the house price index. You could call them before going to the solicitor to see what figure they have. Valuations from estate Agents aren't really of any value, you really want a proper valuation.

I also agree that you shouldn't be increasing your debt to pay off your ex, she is lucky you are willing to let her name come off of the mortgage so that's she's no longer responsible for a mortgage on a property with negative equity. You could look at it that taking the mortgage on in your name it is a sale from the 2 of you just to you, she's entitled to the first 8% of equity on sale - there's no equity she gets nothing. Hopefully your legal advisor wll find an arrangement where she gets nothing and accepts the loss or she's paid at a later date eg on sale of the property or in 5 years time for example so at least it's not never for her.

nick1977

Why don't you make her an offer?

If I'm getting the facts right, she paid the £10k deposit for the property (you paid none), but you paid 2/3rds of the monthly mortgage payment.

With the property £6k in -ve equity, I would offer £8000. (£10000 - £2000)

This is taking into account her 1/3 share of the negative equity, and the fact that you are giving her the deposit back.

Others will no doubt have a different approach, but that is my "logical" approach to it!

Failing that you could always just say you'll sell it. Then she might open her eyes and see what you're offering is seriously worth considering.

Nick

minimoocow

Aside from the fact there is no equity therefore the £10k is lost -

How much were the monthly payments and for how long? She may have put in £10k however if you have paid twice as much then surely you will be making up the gap each month?

i.e. if payments were £250 her, £500 you

at start - you paid £0, she paid £10k - she is £10k ahead
end of month 1 - you pay £500, she pays £250 - she is £9,750 ahead
end of month 2 - you pay £500, she pays £250 - she is £9,500 ahead

barnaby-bear

minimoocow wrote: »

Aside from the fact there is no equity therefore the £10k is lost -

How much were the monthly payments and for how long? She may have put in £10k however if you have paid twice as much then surely you will be making up the gap each month?

i.e. if payments were £250 her, £500 you

at start - you paid £0, she paid £10k - she is £10k ahead
end of month 1 - you pay £500, she pays £250 - she is £9,750 ahead
end of month 2 - you pay £500, she pays £250 - she is £9,500 ahead

Not really because you have to factor in her money went in at the start and therefore they borrowed less and had less to repay - you need to look at the split in the % of the loan repaid (not interest the repayment)... most of their payments early in a mortgage will be interest.

Mewcenary

Hi all, I have since seen a solicitor on this, who has studied the Declaration of Trust and other documents.

Their advice essentially mirrors what my IFA and some of the above have said: Her initial 10k deposit is worth nothing now and she has no legal recourse to it. The Declaration of Trust states she would get the first 5% or so of any equity upon sale, but... there isn't any.

Thus paying her 10k at this stage to take on her share of the debt is just not right.

She is still not going to pay the mortgage, so why at this stage I would WANT to hang on to the property (and get someone in to rent a room) I am not sure. Seems I am taking on all the risk?

Also, this property is 30 miles from where I work, and that's a 60 mile round trip. Basically I spend about £350 pcm on transport. Originally only moved there as a compromise for both of us, now she has moved out to suit her new location, I am thinking I should do the same...

You see, I am obviously 'picking up the tab' for her share of the mortgage right now. Yes, if we sold now I would have to pay the resulting debt. Let's say 5k. But my parents are (thankfully) happy for me to move in and they are very local to where I work. So it wouldn't take long to clear that debt AND get a decent deposit together...

Of course, no sale can happen instantly, I know that. But it seems that there is no point getting myself in more debt to the tune of 10k at this stage...