Thoughts appreciated about a break up and mortgage scenario

Exodi

Tarama said:

Exodi said:

New to this thread but understand the situation (I personally went through the same thing about 4 years ago).

Likewise I was just off meeting affordability to take on the sole mortgage + further advance (which was used to buy out the other person) - in the end, I combined forces with my new-ish partner and we bought out the house together (she put a trivial amount in, it was our combined affordability that was important) . I wouldn't personally recommend doing this, however we had said we wanted to buy a house together in the future anyway, and there seemed little sense wasting thousands of pounds in moving and solicitors, when I technically already owned a house. We set up a deed of trust so the existing equity was protected in the event of a break up... fast forward and we're married with kids so it all worked out OK in the end.

Sorry, I digressed a bit. How far from affordability are they? Typically lenders will lend 4.5x annual gross income? How far is that to the amount needed to take on the existing mortgage+further advance? If it's close I'd be tempted to haggle on the price (after all, you're both saving on estate agent costs by not selling), if you're a million miles off I can't see that you have any other choice but to sell.

Hello Exodi 

thank you for your swift reply. Sorry to hear about your situation, but clearly you have had a positive outcome. 


A few further points about this situation:

- the individual here can afford to buy out the second person, so they do not need to borrow this money on the mortgage.
- the afordability shortfall is - can borrow £192K and the current mortgage amount is £206K - so £14 shortfall.  Parents can supply £ this if allowed to do so.  
- Parents would be able to step in as a buyer/guanantor etc - to provide more funds - if this is permitted.  They have income to do this.  They are in their early 60s so this may mean they are non eligible here.  Unsure about these points.   

Thanks 

Sorry, like I said, I'm new to this thread so haven't read all the responses or fully absorbed the details so I'm just going to skim through and recap in a way that's easier for me to digest:

It appears the house was purchased for £315k (through a combination of £80k initial contribution and £235k mortgage). Party A paid £67.2k of the initial contribution and party B paid £12.8k.

You estimate the house to be worth £370k now with a current mortgage of £206k. If DoT stipulates deposits values are returned then equity split (common) then Party A would be entitled to £109.2k and party B would be entitled to £54.8k. If DoT just stipulates equity is split then they'd both be entitled to £82k. For simplicity, let's just assume it's the former.

I regret to inform there is a flaw in your thinking. Your calculations and assumptions on whether they can afford the mortgage is with the other persons equity - you still need to buy them out. In reality, they need to afford the existing mortgage and pony up £54.8k to buy the other person out - so their new mortgage would be £206k + £54.8k (usually done as a further advance, basically a second mortgage - hence mentioning it earlier). Don't feel hard done by, this is logical - they would then have a debt of £260.8k on a house they estimate to be worth £370k, meaning there is £109.2k equity, as we calculated above.

As you can appreciate now, they're not close to affordability (say £70k off, if you include conveyancing). You mention the parents acting as buyers/guarantors (forget the guarantor bit) - so I guess that's an option, but certainly far from ideal and a lot of disadvantages, I wouldn't recommend it. Personally the cleanest way will probably be to sell the house, sorry to say.

As an aside, I personally wouldn't use the figure estate agents suggest it's worth to get your business as the valuation basis. Instead I'd consider using the auto-valuation by the lender (if you're with Nationwide, you can find this figure on mortgage manager) and perhaps even knock a couple grand off in reflection of the fact that you both benefit from not selling it through an estate agent. Obviously pretty irrelevant given the affordability issue.

Tarama

Exodi said:

Tarama said:

Exodi said:

New to this thread but understand the situation (I personally went through the same thing about 4 years ago).

Likewise I was just off meeting affordability to take on the sole mortgage + further advance (which was used to buy out the other person) - in the end, I combined forces with my new-ish partner and we bought out the house together (she put a trivial amount in, it was our combined affordability that was important) . I wouldn't personally recommend doing this, however we had said we wanted to buy a house together in the future anyway, and there seemed little sense wasting thousands of pounds in moving and solicitors, when I technically already owned a house. We set up a deed of trust so the existing equity was protected in the event of a break up... fast forward and we're married with kids so it all worked out OK in the end.

Sorry, I digressed a bit. How far from affordability are they? Typically lenders will lend 4.5x annual gross income? How far is that to the amount needed to take on the existing mortgage+further advance? If it's close I'd be tempted to haggle on the price (after all, you're both saving on estate agent costs by not selling), if you're a million miles off I can't see that you have any other choice but to sell.

Hello Exodi 

thank you for your swift reply. Sorry to hear about your situation, but clearly you have had a positive outcome. 


A few further points about this situation:

- the individual here can afford to buy out the second person, so they do not need to borrow this money on the mortgage.
- the afordability shortfall is - can borrow £192K and the current mortgage amount is £206K - so £14 shortfall.  Parents can supply £ this if allowed to do so.  
- Parents would be able to step in as a buyer/guanantor etc - to provide more funds - if this is permitted.  They have income to do this.  They are in their early 60s so this may mean they are non eligible here.  Unsure about these points.   

Thanks 

Sorry, like I said, I'm new to this thread so haven't read all the responses or fully absorbed the details so I'm just going to skim through and recap in a way that's easier for me to digest:

It appears the house was purchased for £315k (through a combination of £80k initial contribution and £235k mortgage). Party A paid £67.2k of the initial contribution and party B paid £12.8k.

You estimate the house to be worth £370k now with a current mortgage of £206k. If DoT stipulates deposits values are returned then equity split (common) then Party A would be entitled to £109.2k and party B would be entitled to £54.8k. If DoT just stipulates equity is split then they'd both be entitled to £82k. For simplicity, let's just assume it's the former.

I regret to inform there is a flaw in your thinking. Your calculations and assumptions on whether they can afford the mortgage is with the other persons equity - you still need to buy them out. In reality, they need to afford the existing mortgage and pony up £54.8k to buy the other person out - so their new mortgage would be £206k + £54.8k (usually done as a further advance, basically a second mortgage - hence mentioning it earlier). Don't feel hard done by, this is logical - they would then have a debt of £260.8k on a house they estimate to be worth £370k, meaning there is £109.2k equity, as we calculated above.

As you can appreciate now, they're not close to affordability (say £70k off, if you include conveyancing). You mention the parents acting as buyers/guarantors (forget the guarantor bit) - so I guess that's an option, but certainly far from ideal and a lot of disadvantages, I wouldn't recommend it. Personally the cleanest way will probably be to sell the house, sorry to say.

As an aside, I personally wouldn't use the figure estate agents suggest it's worth to get your business as the valuation basis. Instead I'd consider using the auto-valuation by the lender (if you're with Nationwide, you can find this figure on mortgage manager) and perhaps even knock a couple grand off in reflection of the fact that you both benefit from not selling it through an estate agent. Obviously pretty irrelevant given the affordability issue.

Hello Exodi 

Some interesting thoughts here.  One thing I have not made clear, you state:

I regret to inform there is a flaw in your thinking. Your calculations and assumptions on whether they can afford the mortgage is with the other persons equity - you still need to buy them out. In reality, they need to afford the existing mortgage and pony up £54.8k to buy the other person out - so their new mortgage would be £206k + £54.8k (usually done as a further advance, basically a second mortgage - hence mentioning it earlier).

However the person who hopes to buy the other person out, has the money to fund the equity transfer of £54K, so this does not need to be added to the mortgage.

Parents could make up the shortfall between the £192K and £206K, if the rules allow this, to hit affordability.  

My aim is to help to clarify what possible solutions are availabe at the forthcoming mortgage adviser meeting.  

Again thank you for taking time to answer this.

Exodi

Tarama said:

Exodi said:

Tarama said:

Exodi said:

New to this thread but understand the situation (I personally went through the same thing about 4 years ago).

Likewise I was just off meeting affordability to take on the sole mortgage + further advance (which was used to buy out the other person) - in the end, I combined forces with my new-ish partner and we bought out the house together (she put a trivial amount in, it was our combined affordability that was important) . I wouldn't personally recommend doing this, however we had said we wanted to buy a house together in the future anyway, and there seemed little sense wasting thousands of pounds in moving and solicitors, when I technically already owned a house. We set up a deed of trust so the existing equity was protected in the event of a break up... fast forward and we're married with kids so it all worked out OK in the end.

Sorry, I digressed a bit. How far from affordability are they? Typically lenders will lend 4.5x annual gross income? How far is that to the amount needed to take on the existing mortgage+further advance? If it's close I'd be tempted to haggle on the price (after all, you're both saving on estate agent costs by not selling), if you're a million miles off I can't see that you have any other choice but to sell.

Hello Exodi 

thank you for your swift reply. Sorry to hear about your situation, but clearly you have had a positive outcome. 


A few further points about this situation:

- the individual here can afford to buy out the second person, so they do not need to borrow this money on the mortgage.
- the afordability shortfall is - can borrow £192K and the current mortgage amount is £206K - so £14 shortfall.  Parents can supply £ this if allowed to do so.  
- Parents would be able to step in as a buyer/guanantor etc - to provide more funds - if this is permitted.  They have income to do this.  They are in their early 60s so this may mean they are non eligible here.  Unsure about these points.   

Thanks 

Sorry, like I said, I'm new to this thread so haven't read all the responses or fully absorbed the details so I'm just going to skim through and recap in a way that's easier for me to digest:

It appears the house was purchased for £315k (through a combination of £80k initial contribution and £235k mortgage). Party A paid £67.2k of the initial contribution and party B paid £12.8k.

You estimate the house to be worth £370k now with a current mortgage of £206k. If DoT stipulates deposits values are returned then equity split (common) then Party A would be entitled to £109.2k and party B would be entitled to £54.8k. If DoT just stipulates equity is split then they'd both be entitled to £82k. For simplicity, let's just assume it's the former.

I regret to inform there is a flaw in your thinking. Your calculations and assumptions on whether they can afford the mortgage is with the other persons equity - you still need to buy them out. In reality, they need to afford the existing mortgage and pony up £54.8k to buy the other person out - so their new mortgage would be £206k + £54.8k (usually done as a further advance, basically a second mortgage - hence mentioning it earlier). Don't feel hard done by, this is logical - they would then have a debt of £260.8k on a house they estimate to be worth £370k, meaning there is £109.2k equity, as we calculated above.

As you can appreciate now, they're not close to affordability (say £70k off, if you include conveyancing). You mention the parents acting as buyers/guarantors (forget the guarantor bit) - so I guess that's an option, but certainly far from ideal and a lot of disadvantages, I wouldn't recommend it. Personally the cleanest way will probably be to sell the house, sorry to say.

As an aside, I personally wouldn't use the figure estate agents suggest it's worth to get your business as the valuation basis. Instead I'd consider using the auto-valuation by the lender (if you're with Nationwide, you can find this figure on mortgage manager) and perhaps even knock a couple grand off in reflection of the fact that you both benefit from not selling it through an estate agent. Obviously pretty irrelevant given the affordability issue.

Hello Exodi 

Some interesting thoughts here.  One thing I have not made clear, you state:

I regret to inform there is a flaw in your thinking. Your calculations and assumptions on whether they can afford the mortgage is with the other persons equity - you still need to buy them out. In reality, they need to afford the existing mortgage and pony up £54.8k to buy the other person out - so their new mortgage would be £206k + £54.8k (usually done as a further advance, basically a second mortgage - hence mentioning it earlier).

However the person who hopes to buy the other person out, has the money to fund the equity transfer of £54K, so this does not need to be added to the mortgage.

Parents could make up the shortfall between the £192K and £206K, if the rules allow this, to hit affordability.  

My aim is to help to clarify what possible solutions are availabe at the forthcoming mortgage adviser meeting.  

Again thank you for taking time to answer this.

Oh my apologies - then a solution seems pretty simple:

Instruct a solicitor to organise a transfer of equity (via a TR1 where party B transfers her title in the property to party A for £54.8k in cash).

Simultaneously overpay the mortgage by £14k with the parents money (most lenders allow you to repay 10% of the original balance without penalty per year so should be no issue) - this seems a much cleaner solution than his parents being on the title/mortgage. Party B can then come up with a private arrangement with their parents, if they so desire.

They then do a 'change of parties' with the lender putting the mortgage in his sole name (typically organised simultaneously with the conveyancer doing the transfer of equity), it usually has a negligible fee like £125.

Hoenir

Tarama said:

Parents could make up the shortfall between the £192K and £206K, if the rules allow this, to hit affordability.  

Parents are free to gift whatever they want. On the basis that they are happy to sign a declaration to this effect. Then should be possible to bridge the gap. The lender will have a maximum figure for the amount they are prepared to advance. 

Tarama

Exodi said:

Tarama said:

Exodi said:

Tarama said:

Exodi said:

New to this thread but understand the situation (I personally went through the same thing about 4 years ago).

Likewise I was just off meeting affordability to take on the sole mortgage + further advance (which was used to buy out the other person) - in the end, I combined forces with my new-ish partner and we bought out the house together (she put a trivial amount in, it was our combined affordability that was important) . I wouldn't personally recommend doing this, however we had said we wanted to buy a house together in the future anyway, and there seemed little sense wasting thousands of pounds in moving and solicitors, when I technically already owned a house. We set up a deed of trust so the existing equity was protected in the event of a break up... fast forward and we're married with kids so it all worked out OK in the end.

Sorry, I digressed a bit. How far from affordability are they? Typically lenders will lend 4.5x annual gross income? How far is that to the amount needed to take on the existing mortgage+further advance? If it's close I'd be tempted to haggle on the price (after all, you're both saving on estate agent costs by not selling), if you're a million miles off I can't see that you have any other choice but to sell.

Hello Exodi 

thank you for your swift reply. Sorry to hear about your situation, but clearly you have had a positive outcome. 


A few further points about this situation:

- the individual here can afford to buy out the second person, so they do not need to borrow this money on the mortgage.
- the afordability shortfall is - can borrow £192K and the current mortgage amount is £206K - so £14 shortfall.  Parents can supply £ this if allowed to do so.  
- Parents would be able to step in as a buyer/guanantor etc - to provide more funds - if this is permitted.  They have income to do this.  They are in their early 60s so this may mean they are non eligible here.  Unsure about these points.   

Thanks 

Sorry, like I said, I'm new to this thread so haven't read all the responses or fully absorbed the details so I'm just going to skim through and recap in a way that's easier for me to digest:

It appears the house was purchased for £315k (through a combination of £80k initial contribution and £235k mortgage). Party A paid £67.2k of the initial contribution and party B paid £12.8k.

You estimate the house to be worth £370k now with a current mortgage of £206k. If DoT stipulates deposits values are returned then equity split (common) then Party A would be entitled to £109.2k and party B would be entitled to £54.8k. If DoT just stipulates equity is split then they'd both be entitled to £82k. For simplicity, let's just assume it's the former.

I regret to inform there is a flaw in your thinking. Your calculations and assumptions on whether they can afford the mortgage is with the other persons equity - you still need to buy them out. In reality, they need to afford the existing mortgage and pony up £54.8k to buy the other person out - so their new mortgage would be £206k + £54.8k (usually done as a further advance, basically a second mortgage - hence mentioning it earlier). Don't feel hard done by, this is logical - they would then have a debt of £260.8k on a house they estimate to be worth £370k, meaning there is £109.2k equity, as we calculated above.

As you can appreciate now, they're not close to affordability (say £70k off, if you include conveyancing). You mention the parents acting as buyers/guarantors (forget the guarantor bit) - so I guess that's an option, but certainly far from ideal and a lot of disadvantages, I wouldn't recommend it. Personally the cleanest way will probably be to sell the house, sorry to say.

As an aside, I personally wouldn't use the figure estate agents suggest it's worth to get your business as the valuation basis. Instead I'd consider using the auto-valuation by the lender (if you're with Nationwide, you can find this figure on mortgage manager) and perhaps even knock a couple grand off in reflection of the fact that you both benefit from not selling it through an estate agent. Obviously pretty irrelevant given the affordability issue.

Hello Exodi 

Some interesting thoughts here.  One thing I have not made clear, you state:

I regret to inform there is a flaw in your thinking. Your calculations and assumptions on whether they can afford the mortgage is with the other persons equity - you still need to buy them out. In reality, they need to afford the existing mortgage and pony up £54.8k to buy the other person out - so their new mortgage would be £206k + £54.8k (usually done as a further advance, basically a second mortgage - hence mentioning it earlier).

However the person who hopes to buy the other person out, has the money to fund the equity transfer of £54K, so this does not need to be added to the mortgage.

Parents could make up the shortfall between the £192K and £206K, if the rules allow this, to hit affordability.  

My aim is to help to clarify what possible solutions are availabe at the forthcoming mortgage adviser meeting.  

Again thank you for taking time to answer this.

Oh my apologies - then a solution seems pretty simple:

Instruct a solicitor to organise a transfer of equity (via a TR1 where party B transfers her title in the property to party A for £54.8k in cash).

Simultaneously overpay the mortgage by £14k with the parents money (most lenders allow you to repay 10% of the original balance without penalty per year so should be no issue) - this seems a much cleaner solution than his parents being on the title/mortgage. Party B can then come up with a private arrangement with their parents, if they so desire.

They then do a 'change of parties' with the lender putting the mortgage in his sole name (typically organised simultaneously with the conveyancer doing the transfer of equity), it usually has a negligible fee like £125.

Hello Exodi 

thank you - this all seems to be the same as I understand the situation and this has all been set in motion.  Hopefully it will all work out here.

Tarama

Hoenir said:

Tarama said:

Parents could make up the shortfall between the £192K and £206K, if the rules allow this, to hit affordability.  

Parents are free to gift whatever they want. On the basis that they are happy to sign a declaration to this effect. Then should be possible to bridge the gap. The lender will have a maximum figure for the amount they are prepared to advance. 

Hello Hoenir 

thank you - this is good to know.  Again I hope this all works out.