Tenants in common separating

GleamingParsnip

Good evening,

About 2.5 years ago, my girlfriend Kim and I bought a house together. We're tenants in common (50% each), on a 5-year fixed term (20 year total) mortgage. Things aren't going well, and there's a very high chance of us splitting up. We aren't married and there are no children to consider, just the two of us. Excuse me if I sound cold or detached, I'm just trying to consider some options of what we can do with the house.

I've done some research online, and the most common thing to do is for the house to be sold very quickly:
a. The house is sold on the open market. The mortgage is paid off and Kim and I split the difference equally and move on.
b. One tenant-in-common sells their share to the other. In our case Kim sells me her share, the house is remortgaged and she takes 50% of the value and I stay in the house with the whole mortgage.

What I'd like to find out about is what could happen if Kim moves out and I take over the current mortgage until the end of its term, then buy her out at that stage (Summer 2020). Is there a special name for that kind of arrangement because I am finding it hard to google?

Malc00

Very sorry to hear your situation but I understand you want to know where you stand.

Who is your mortgage with at the moment?

The second option is called a transfer of equity. Where the joint name is removed from the mortgage and deed and placed solely in your name. Depending on the lender's criteria and your affordability you can explore borrowing funds against the home in order to pay off her interest.

Out of curiosity - why would you not want to buy her out sooner?

enthusiasticsaver

Did you draw up a declaration of trust when buying the property stating what should happen if you separated?

You would need to speak to your lender as to whether you are able to take the mortgage out on your own as this would depend on your income. Your ex would just get 50% of the equity so it depends on how much the mortgage is and the value of the property.

getmore4less

GleamingParsnip wrote: »

.

What I'd like to find out about is what could happen if Kim moves out and I take over the current mortgage until the end of its term, then buy her out at that stage (Summer 2020). Is there a special name for that kind of arrangement because I am finding it hard to google?

There is no name for it.

There are various ways to do it.

They continue to own 50%, you rent their 1/2 of them and that money pays their share of the mortgage.

you agree the equity% at point of moving out eg ((Value-mortgage)/2) and that stays fixed till you buy out and you pay all the mortgage
ie. you get more of the future uplift in value.

You do the buyout but don't have the cash so it is a debt(fixes the cash value) and you agree a rate of interest till you can raise the cash.

If she moves out there are tax implications, income and CGT
If you get a get a lodger that introduces new ones.

GleamingParsnip

Current mortgage provider is Halifax.

My concern about buying her out immediately is that I may not be able to afford it right away. We have a relatively low loan-to-value ratio - it was 35% on purchase. (£60k mortgage vs £170k value). My assumption here is that "buying her out" means increasing the mortgage by 50% of the value of the house (£85k). If I remortgage and increase it to buy Kim's share, that will mean the new mortgage will increase to £135k, more than double the old one - 85% of the value.

That doesn't take into account two things - the amount of original mortgage already repaid and any change in the value of the house from the initial valuation. I've had a look on Rightmove and Zoopla and it's incredibly hard to judge the current selling price of similar houses due to the size of the village. There simply aren't enough similar properties on the market for a quick and easy comparison.

Tom99

Based on your figure you need to pay you ex (170-60)/2=55 so your remortgage will be for £115 not £135.

That will need adjusting for price increase and mortgage repayment to date.

getmore4less

What's the current value and outstanding mortgage?

GleamingParsnip

Based on your figure you need to pay you ex (170-60)/2=55 so your remortgage will be for £115 not £135.

Thanks. Oh, I see, because it's her half of the equity that I'd need to add to the mortgage, not half the total value.

The current balance on the mortgage account is just over £54,000. That's not considering any fees for coming out of the fixed term early.

enthusiasticsaver

I would have thought Kim would be entitled to her half of the deposit and half the equity with maybe deductions if she has not been paying the mortgage since your split. So her share of the deposit would be £55k plus half the equity which is the value of the house less £54k.

GleamingParsnip

I would have thought Kim would be entitled to her half of the deposit and half the equity with maybe deductions if she has not been paying the mortgage since your split. So her share of the deposit would be £55k plus half the equity which is the value of the house less £54k.

I agree, I think it was just a poor use of terminology on my part when I said equity. I wasn't specifically including reinstating the original deposits, but combined them with the value after deducting the mortgage.

So if the value is £170k less remaining mortgage £54k = £116k.

Which shows the £6 more than the original deposits as the change in equity. So Kim's share is either £55k + £6k/2 or £116k ÷2. Either way that's £58k, plus half of whatever the change in market price has been since the original valuation was done in 2015, before we bought it.

And so in order to buy her out, that's the amount that I'd need to increase the mortgage by?

getmore4less

the simple calculation is

1/2 the current value less 1/2 the outstanding mortgage.