Change of circumstance

Mr_Curious

Hi Guys,

This was originally posted in a different part of the forum but I felt it may get better exposure here.

Opinions and experiences sought please. Go easy on me, I'm fragile!

My situation is that me and my newly Ex bought a house. The problem is that the relationship has now broken down. The finances are a mess and a lot to do with the house.

Fixed rate mortgage to end of 2019. It is at this point that I need to remortgage to try and buy her out of the house. We are currently joint tenants. My affordability will be pretty stretched to remortgage the full amount required. I am also saving a good wedge to try and bridge the gap.

My questions would be -

Would it be better to change ownership to tenants in common and make any allowed overpayments without incurring a charge? As opposed to putting the money away in as high interest accounts until required? Would banks look favorably seeing that over payments have been made? Also am I right in thinking that overpayment is pure capital that is payed off and not interest?

By changing to tenants in common the equity could be divided up if it happened that a sale was the only way forward. Does that sound right? Would a legal contact have to be drawn up to explain the equity/overpayment thing? Clearly it is not in my interest to overpay if I will lose half of it.

As I said, things are a mess. We are amicable about things at the moment but I'm just trying to look forward and protect myself.

I hope this makes some modicum of sense.

Thoughts and opinions please. Any experience welcome!

Mr_C

Pixie5740

What does you ex want to do? Does (s)he want to remain financially linked to you until the end of 2019?

TBagpuss

Can you afford the mortgage by yourself, and have you made enquiries about whether your lender would consider allowing you to take on the mortgage in your sole name now? (Some lenders may, at their discretion, agree not to impose the ERC, and to allow a joint mortgage to be changed to a sole one.)

I *strongly* recommend that you get a formal separation agreement drawn up setting out the terms you have agreed on, including things such as
- who will be living in the property in the short term
- who will be responsible for paying the bills, mortgage, insurance etc
- who will be responsible for decoration, repairs and upkeep of the property
- whether the person living in the property will be paying any kind of 'occupation rent' to the other
- whether either, or both of you can force a sale before 2019 if you wish to do so

If you are going to be staying in the house until you can buy her out in 2 years time then it's worth bearing in mind that you may still be getting cheaper accommodation that your ex, if she is having to rent, so consider whether it may be fair to factor than in in determining how you split the value of the property and whether she should be credited with some of the difference.

It will probably be sensible for you to sever the joint tenancy so you become tenants in common. Your separation agreement can include a declaration of trust if you plan to own in unequal shares, and can also define whether any over-payment would be repaid on sale

TBagpuss

To add - yes, overpayments usually come off the capital, but check your specific mortgage to see how they calculate this, and what overpayments you can make without triggering the ERC.

Whether it makes more sense to overpay or to save will depend on your mortgage interest rate and the return you can get on any savings. Saving in a separate 'pot' may be much simpler , but either way you need to come to an agreement with your ex about what is fair over all, including taking into account the costs to your ex of remaining tied to the mortgage for another 2 years and then letting you take it over.

Mr_Curious

Thank you for you input.

With regards what my Ex wants to do, I am not too sure. I'm not certain she knows either if I'm honest. She has said that at the minute she is happy to see the house as an investment. But I'm well aware that things can change quickly and by having a financial tie to a house then she is restricted with what she can afford.

As things stand there is nothing formal but we have agreed that the mortgage, council tax and insurance will be split between the two of us. All other bills paid by me.With things in the house, cosmetic stuff I will be responsible for but other things that are integral to the house (E.g Boiler) I think that it would be fair to assume that is again split down the middle although that hasn't been agreed.

The way that we would own unequal share in the property is if I made overpayments on the mortgage. My thinking for doing so is that lenders can see that when it comes to remortgaging that affordability was not an issue and they may be more open to me remortgaging and paying the Ex her cut of things.

Interest rate is 2.7%. Overpayments can be made up to a point without incurring a charge.

Thank you again for your advice. All very sensible stuff

Pixie5740

That's not how mortgage affordability calculations work. You will need to be able to demonstrate that you earn enough to not only afford the mortgage at today's rate (plus your other financial commitments) but also should interest rates to around 7%.

Mr_Curious

Thank you Pixie.

I am aware of that but I didn't know if it was given any consideration.