Calculating equity when third party involved, following separation

markjames19

Hi all,

Apologies if I haven't directed this to the correct area.

I'm in the process of remortgaging following splitting up with my partner and was after some assistance with a few things.

We bought a new home 7 years ago with the Bloor Homes Help to Buy scheme, so 15% share belongs to them (or a separate holding company). Our mortgage stands at around 60%, with the remaining 25% being our own equity.

My partner and I have agreed to split our equity 50/50 (as we both had equal deposit to start with) and for myself to take on the mortgage and add on the shared equity into a new mortgage (which I am in the process of agreeing). I have some inheritance so have agreed to buy out my partner’s 12.5% equity.

My partner cannot afford to stay in the house, hence the reason for myself to take on the mortgage. She will look to rent close by with our two children aged 7 and 3.

My queries come down to whether the third party equity should be taken into account when calculating our own equity. With our house valued at around £210,000, these are the figures:

Mortgage – 60% (£120,000)
Our equity – 25% (£58,500) – which will be split 50/50
Third party equity – 15% (£31,500)

My query is whether paying back the third party equity should come from our own equity and then split the difference, or whether I would just need to take this extra on as I will be taking on the whole mortgage? This will obviously affect how much my partner would be entitled to.

If we take the third party equity from our own equity, we'd be left with £13,500 each. But if I took on the third party equity as part of the new mortgage, our own equity would be £29,250 each and I would pay the whole lot off via the new mortgage myself, and my partner would take her share of the equity.

Hope that makes sense!

getmore4less

If you are happy with the deposit and mortgage was 50:50 then you own the 85%

Take off the mortgage and split that.

85% of 210 is 178500. Less 120k mortgage 58500

1/2 each £29250 is the starting point.

markjames19

getmore4less wrote: »

If you are happy with the deposit and mortgage was 50:50 then you own the 85%

Take off the mortgage and split that.

85% of 210 is 178500. Less 120k mortgage 58500

1/2 each £29250 is the starting point.

Apologies, looks like I had my sums slightly incorrect to start with!

Yes, all is 50:50. I was just unsure as if we were selling the property then the 3rd party equity would come out of our own equity, therefore leaving us with £27,000 to split (£58,500 (ours) - £31,500 (3rd party)).

The 3rd party equity has to be repaid in full as we are remortgaging, so its just a case of whether it comes out of our equity to repay it, or if I have to take on the full responsibility with the new mortgage.

Caz3121

markjames19 wrote: »

Apologies, looks like I had my sums slightly incorrect to start with!

Yes, all is 50:50. I was just unsure as if we were selling the property then the 3rd party equity would come out of our own equity, therefore leaving us with £27,000 to split (£58,500 (ours) - £31,500 (3rd party)).

The 3rd party equity has to be repaid in full as we are remortgaging, so its just a case of whether it comes out of our equity to repay it, or if I have to take on the full responsibility with the new mortgage.

you are double counting (you are deducting the 3rd party equity twice - once off the total and once off your equity)

house value less outstanding mortgage less 3rd party equity leaves your equity which you would divide between you

markjames19

Caz3121 wrote: »

you are double counting (you are deducting the 3rd party equity twice - once off the total and once off your equity)

house value less outstanding mortgage less 3rd party equity leaves your equity which you would divide between you

How have I not seen that before now?! Thanks for pointing out. Brain scramble with everything going on at the moment.

I'm still not 100% clear...

We aren't selling, so the £31,500 needs to be paid off (we had 10 years but is due now due to our change in circumstances). Should this be paid from our combined equity, or through me remortgaging the full amount? I'm not sure whether it should be split and paid off between us, or whether I should be taking it all in in the new mortgage as I'll be staying in the house.

getmore4less

If you want that 15% then you pay for it, currently neither of you own it.

If you pay that 15%(1/2 each) first so you own 100% then you still need to buy the 7.5% off the OH back where you started paying the 15%.