Second Mortgage after breakup

scoey8

Hi all looking for some advice, 
I have recently broke up with my partner. We have a mortgage together which has 25 years left to run and currently the monthly payment is £650.
I am moving out of the property but will be staying on the mortgage (she can't afford to buy me out) and paying half the monthly payment. I am happy with this arrangement.
I would rather buy another property, but was wondering what problems i might run into? Affordability wise do lenders take into account the half i would be paying or would they take the full amount £650 as a monthly outgoing? Also i take it i would be liable for the stamp duty as a second property? Would i need a bigger deposit? Thanks for any advice.

babyg912

Hi @scoey8. Sorry to hear about your break up. Yes they will take into account the full payment on your current property and you would need a minimum of 15% deposit. You would also be liable for the additional stamp duty due to owning two properties. 
Best Wishes 

CSL0183

scoey8 said:

Hi all looking for some advice, 
I have recently broke up with my partner. We have a mortgage together which has 25 years left to run and currently the monthly payment is £650.
I am moving out of the property but will be staying on the mortgage (she can't afford to buy me out) and paying half the monthly payment. I am happy with this arrangement.
I would rather buy another property, but was wondering what problems i might run into? Affordability wise do lenders take into account the half i would be paying or would they take the full amount £650 as a monthly outgoing? Also i take it i would be liable for the stamp duty as a second property? Would i need a bigger deposit? Thanks for any advice.

I have just been through this exact situation. 

The big issue you will have is the 2nd home tax. In Scotland it’s a huge 4% of the new property price plus the normal stamp duty. In England and rest of U.K, I believe it’s 3% + normal stamp duty. 

This was the first hurdle and the only way around this was to remove my financial interest in the home with my ex. In order to do so, she had to buy me out for me to sign the deeds over solely to her. The problem we now had was that in order to buy me out, we had to increase the borrowing for her to do so. This then of course led to affordability issues where if she took the mortgage on on her own then it was a No Go. She didn’t have the income by herself to fund the new mortgage. 

We have a son together and I decided that the best option would be to remortgage under the joint borrower, sole proprietor mortgage. This meant that I would sign the deeds over to my ex but still be on the mortgage for the lending. HSBC allowed us to do this (Not many mortgage companies do) 

My ex pays the full mortgage payment every month and I trust her to continue to do so until the next remortgage period comes along 5yrs down the line where she will then be responsible enough and in a position to remortgage on her own. 

This solved the 2nd home tax. However, what it does do is limit the amount of borrowing for your 2nd home. Fortunately enough, my new partner and I have high enough salaries that this didn’t really matter as our affordability was enough for both homes (and some) so we passed with the 2nd mortgage on our own home no problems. 

As an example, for easy maths and illustrative figures. If you had a £100k joint income and were allowed to borrow £500k and already had a £100k mortgage elsewhere, you would then only get £400k of borrowing, not £500k. They take the full other mortgage balance into account and deduct it from your new lending balance. 

Another problem then arises in that you have a 2nd mortgage and it’s then how Lenders treat you for LTV purposes. Most will require 20% (80% LTV) but Halifax for example were one of a handful that accepted a 2nd mortgage with a 15% (85% LTV). There were no lenders willing to offer a 2nd mortgage with a 10% (90% LTV). 

Hope this helps. 

scoey8

Thanks both. 
CSL0183 When i search for second home tax i can't find anything other than stamp duty. Have you got a link to this law? (I'm in England). 
I will need to stay on the deeds of the property as i have 50k equity in it and don't want to write that off. I can get a deposit together at 15/20% but i think i might struggle with affordability to be honest. How would a lender look upon 2 people taking out a second mortgage (to meet affordability check) e.g me and a parent?

Carl2510

scoey8 said:

Thanks both. 
CSL0183 When i search for second home tax i can't find anything other than stamp duty. Have you got a link to this law? (I'm in England). 
I will need to stay on the deeds of the property as i have 50k equity in it and don't want to write that off. I can get a deposit together at 15/20% but i think i might struggle with affordability to be honest. How would a lender look upon 2 people taking out a second mortgage (to meet affordability check) e.g me and a parent?

What about both of you moving out, and maybe renting out the property? Both could go into rented until suitable to have a good deposit for you to own your own homes or find new partners. You would still be liable for stamp duty on the second home. Which is the normal rate then 3% on top of that.

Thrugelmir

scoey8 said:

I am moving out of the property but will be staying on the mortgage (she can't afford to buy me out) and paying half the monthly payment. I am happy with this arrangement.

Why not sell? Relationships don't always remain amicable. In the future you'lll find it very hard to remove your ex from the property. The mortgage committment will count against you. Likewise you'll incur second home stamp duty. 

CSL0183

scoey8 said:

Thanks both. 
CSL0183 When i search for second home tax i can't find anything other than stamp duty. Have you got a link to this law? (I'm in England). 
I will need to stay on the deeds of the property as i have 50k equity in it and don't want to write that off. I can get a deposit together at 15/20% but i think i might struggle with affordability to be honest. How would a lender look upon 2 people taking out a second mortgage (to meet affordability check) e.g me and a parent?

Yes, scroll half way down to “Higher rates for additional properties”..

https://www.gov.uk/stamp-duty-land-tax/residential-property-rates

There’s no way around it I’m afraid. Even though you are replacing YOUR main residence with another so thinking the tax shouldn’t apply, it does as you are still treated as one unit with your ex and you fail on the “Do you own another property question”. You can’t be on the title deeds of two residential properties without incurring the additional tax. For example, you want to protect your equity in your existing home and create new equity in the new home (so benefitting twice by house equity) - It’s you who the 2nd home tax is directly aimed at. 

If purchasing say a £300k property, you are £9k straight away in 2nd home tax, then the usual stamp duty element on top of that and then of course the affordability. 

Yes, if you are buying with a new partner, you complete the application as a joint couple so her (or his if you are that way inclined) salary would be included in the affordability check. Parents a bit more difficult as they are usually age restricted, unless you are young and your parents are young. They would then fall foul of the 2nd home tax too (presuming they own a property already) but obviously you would only pay one lot. If you managed to get your ex to buy you out so you were off the deeds, you would then fall foul again if you added someone to the mortgage that also had a property. 

Gone are the days of buying multiple properties and making a fortune from housing. With 2nd home tax and the ending of mortgage tax relief earlier this year, it can be difficult now to invest in property and make it work for you.   

CSL0183

Affordability wise, as per previous post. You need to know what your max borrowing is and then deduct the full outstanding mortgage  balance with your ex from mortgage 1 and whatever is leftover, you then work from there for mortgage 2. 

So if a single application and with a £50k salary, you may get a £200k mortgage (4x) However, if you’re still owe £100k on home 1, for home 2, you will only be able to borrow £100k, not £200k. If you have a high mortgage with your ex and you’re needing another high mortgage with your new house and you don’t have a big salary to cover both in their entirety then you don’t stand a chance I’m afraid. Lenders will look at your affordability on both houses with you paying both mortgage payments. Your ex’s contribution doesn’t matter I’m afraid as it doesn’t count in the 2nd mortgage application and cannot be used (Not even declaring it as rental income, they won’t allow that)

As previously mentioned, I done this just a few months ago and it’s a stressful time. I’ve had many sleepless nights, the stress and the worry, my new partner getting on at me for trying to keep everyone happy (my ex with my son) but it all worked out in the end. 

Can you get your ex to buy you out? Can you do what I done? Remortgage the property to release your £50k and extend the mortgage so that your ex can afford the full monthly payment herself? 

You stay on the mortgage to allow for this remortgage and equity release to happen? In turn, you sign the deeds over to her 100% and you are just then a guarantor? This gets you away from the previous house and 2nd home tax and helps your ex out to stay in the home.

However, if doing so and increasing mortgage number 1, you decrease affordability for mortgage number 2. Theres also the risk element to consider that you would be liable for a mortgage with no ownership rights. Although this could be challenged legally later ( on event of death of ex for example, lender would force sale of home) or if things turned sour and your ex didn’t pay, you could go to the courts and get yourself removed.