What options do I have?

[croyde]

I know I should seek an IFA but having been burnt by them before I thought I'd see what the PH financial massive would say about this:

Wife and I have been separated for 4 years and she is happy to split everything down the middle. We have 3 young kids and currently I live in the house and look after them when I am not working. These periods are getting longer as my work is drying up. She lives elsewhere but still stays in the house from time to time when she is looking after the kids.

Financially this has been good but it has meant that I have not been able to get on with my life so this year I plan to move out but this will increase my monthly costs by nearly £2000 if I rent nearby as this is SW London and a 2 bed flat is between £1500 to £1800 a month.

OK, we have a £240,000 offset bank account mortgage, interest only, at 1% above base rate lifetime tracker. Lucky we know. Current equity in the house is about £500,000 with monthly cost of around £250.

We both have businesses which pay us each about £30k before tax. Sadly mine used to be a lot more but business is not booming.

What would be the possibility of my ex keeping the house and borrowing the money to give me half the equity?

Also what is the highest mortgage I could get with a say £200,000 deposit but earning £28k a year. (Last tax year's accounts)?

Basing this on the fact that a 2-bedroomed flat starts at £350,000 for something semi-decent in a nice-ish area close by, so I can continue looking after the kids.

Thanks for any advice or help and any suggestions for a decent Independent Financial Advisor who may be able to get a better mortgage deal than the ones I see advertised by the banks.

Cheers.

ETA I also should be able to get hold of £60k in cash.

[Sarnie]

croyde said:

I know I should seek an IFA but having been burnt by them before I thought I'd see what the PH financial massive would say about this:

Wife and I have been separated for 4 years and she is happy to split everything down the middle. We have 3 young kids and currently I live in the house and look after them when I am not working. These periods are getting longer as my work is drying up. She lives elsewhere but still stays in the house from time to time when she is looking after the kids.

Financially this has been good but it has meant that I have not been able to get on with my life so this year I plan to move out but this will increase my monthly costs by nearly £2000 if I rent nearby as this is SW London and a 2 bed flat is between £1500 to £1800 a month.

OK, we have a £240,000 offset bank account mortgage, interest only, at 1% above base rate lifetime tracker. Lucky we know. Current equity in the house is about £500,000 with monthly cost of around £250.

We both have businesses which pay us each about £30k before tax. Sadly mine used to be a lot more but business is not booming.

What would be the possibility of my ex keeping the house and borrowing the money to give me half the equity?

Also what is the highest mortgage I could get with a say £200,000 deposit but earning £28k a year. (Last tax year's accounts)?

Basing this on the fact that a 2-bedroomed flat starts at £350,000 for something semi-decent in a nice-ish area close by, so I can continue looking after the kids.

Thanks for any advice or help and any suggestions for a decent Independent Financial Advisor who may be able to get a better mortgage deal than the ones I see advertised by the banks.

Cheers.

ETA I also should be able to get hold of £60k in cash.

I'm a Mortgage Broker if you want to PM me directly?

As you've posted the above information, the max your partner will be able to borrow will be 5x her income as an absolute maximum and is dependent on other details such as any other credit commitments. Therefore £30k x 5 = £150k

If you have a joint £240k mortgage then she not only doesn't earn enough to give you your £250k, she doesn't earn enough to take over the £240k mortgage you have to allow you to be released from it by the lender.

If your earnings are £28k then you could also borrow 5x your income, details dependent. Giving you £28k x 5 = £140k + your £60k = £200k properties, but if you can't get released from your joint mortgage you are going to struggle secure another mortgage on those figures...........

[megaphone]

Bit of a tough situation. Just a few thoughts for you.

Will your ex be able to afford the repayments on the £500k mortgage if she gives you half the equity?

Will the offset loan allow this much?

What happens when interest rates go up?

How will your ex pay off the £500k loan, she will eventually have to sell the house, yes?

[croyde]

Thanks guys, both your answers I have thought about before. I had a friend who split with his wife then had a hard time convincing the mortgage company that he could continue on his own. He won in the end.

Funnily enough as I am the glass half empty type whilst she is the glass half full, it seems that I am correct. Regardless of the financial success of our home it does mean bugger all to our current situation.

I would like to keep the house, not just to make it easy for the kids but the act of moving means handing over pots of money to others ie solicitors and estate agents with us ending up with a couple of hundred thousand each which won't buy a couple of 2 bedroomed flats.

Great to have 'made' so much but frustrating that it doesn't appear to help.

[megaphone]

How about you both 'borrow' another £100k against the offset mortgage, that will give you £160K against a second property. You will then both still own the house (and the eventual debt) . You'll need to decide what happens with the second property re ownership.

[Sarnie]

I can only see the sale of the property being the only realistic way out for both of you. To release you from the mortgage and give you the £250k she would have to borrow £490k.

£490k / 5 = £98,000 which is the absolute minimum she'd need to be earning to get you your money and take over the mortgage on her own.

[croyde]

I presume that Megaphone's solution does not work as our joint salary will not cover the current mortgage amount plus the extra £200k.

I did think that once you had a lot of equity in a property, your wages were not so important as you would not be willing to risk losing your own money.

How about a buy to let and then I rent it at an affordable amount?

As we do get on and only want to do what is best for us and the kids can we not use the equity to buy a second home? Sorry this does sound like Megaphone's solution.

Cheers.

Edited by croyde on Wednesday 30th January 13:11

[Sarnie]

croyde said:

I presume that Megaphone's solution does not work as our joint salary will not cover the current mortgage amount plus the extra £200k.

I did think that once you had a lot of equity in a property, your wages were not so important as you would not be willing to risk losing your own money.

How about a buy to let and then I rent it at an affordable amount?

As we do get on and only want to do what is best for us and the kids can we not use the equity to buy a second home? Sorry this does sound like Megaphone's solution.

Cheers.

Edited by croyde on Wednesday 30th January 13:11

Jointly, your maximum borrowing would be around £290k (£58k x 5) so that would only release you another £50k.

Your wages will always be one of THE most important factors when lending, along with credit score, age or current credit commitments. The lender won't just borrow you any amount you want just because there is lots of equity in the property. Your request either fits lending criteria or it doesn't, irrespective of the amount of equity in the property.

If you have lots of equity then yes, the underwriting requirements are less, but only on a basis of having to provide your last pay slip and bank statement VS 6 months of pay slips, 6 months bank statements, P60 and inside leg measurement!

A BTL would not be possible as you would be living in the property which is one of the first criteria questions to be asked.

You could quite easily buy a second home but you are still going to be limited to raising another £50k out of the property in addition to your £60k. So if you can get a place for £110k then you can do it.

[fido]

croyde said:

Great to have 'made' so much but frustrating that it doesn't appear to help.

Either way you look at it, each of you only has £250k minus some transaction costs. I think you'll have to analyse your situation from this basis, as painful as it may be, so you can move on with your life. Perhaps look for a 2-bed flat in a slightly cheaper area [albeit still SW London] or compromise in some other way so that you can keep mortgage costs at a realistic level.

Edited by fido on Wednesday 30th January 14:38

[croyde]

Thanks guys. So apart from selling the only other option in order to keep the house will be to rent a room in a student house. Lovely

[croyde]

Just an update on her wages. It's around £9k plus £40k dividends. How would this be seen by a Mortgage company? I'm a sole trader myself so have no idea how this works.

Once again thanks.

[Sarnie]

croyde said:

Just an update on her wages. It's around £9k plus £40k dividends. How would this be seen by a Mortgage company? I'm a sole trader myself so have no idea how this works.

Once again thanks.

The £9k basic and £40k dividends will be treated as primary income so they will give you 5 x £49k potentially. Beware that some lenders will average the number used from the dividends across the last two years, so it would be in your interest to know what the salary and dividend figure for the last financial year was.

[croyde]

Thanks Sarnie.

[Eric Mc]

Why don't lenders look at the GROSS value of the dividend when calculating multiples. After all, they look at the Gross Salary.

A dividend of £40,000 is actually a GROSS dividend of £44,444. HMRC will assess the individual's tax liability on £44,444, not £40,000.

[Sarnie]

Eric Mc said:

Why don't lenders look at the GROSS value of the dividend when calculating multiples. After all, they look at the Gross Salary.

A dividend of £40,000 is actually a GROSS dividend of £44,444. HMRC will assess the individual's tax liability on £44,444, not £40,000.

Lenders are only just getting their heads around using dividends as primary income so don't rock the boat!!

[croyde]

did think that.

Another question, if I may:

So assuming her wages can cover paying the current mortgage in the lender's eyes, does this mean remortgaging and thus losing our excellent BOE + 1% lifetime tracker interest only or is it just a case of making sure she can cover the payments?

Thanks.

[Sarnie]

croyde said:

did think that.

Another question, if I may:

So assuming her wages can cover paying the current mortgage in the lender's eyes, does this mean remortgaging and thus losing our excellent BOE + 1% lifetime tracker interest only or is it just a case of making sure she can cover the payments?

Thanks.

If you are just talking about your Mrs taking over the current balance then there shouldn't be any reason to remortgage, it will just be a case of removing you. However, you will need to ask if they will apply 5x income to your wife's income or not, as essentially she will be re-applying for her own mortgage again but it will be assessed as if it's a whole new application.

I've given you the 5x income as thats the maximum figure a lender will give you, but not all lenders offer this level of borrowing so you would have to check with them.

If they don't, then your only option would be to remortgage in her name only, to a lender who will, which would mean losing your current rate.

[Sarnie]

croyde said:

did think that.

Another question, if I may:

So assuming her wages can cover paying the current mortgage in the lender's eyes, does this mean remortgaging and thus losing our excellent BOE + 1% lifetime tracker interest only or is it just a case of making sure she can cover the payments?

Thanks.

Also, when deciding if she can afford the mortgage, they won't look at your Interest Only payment on 1.5%, they will use a notional rate (usually about 5.99%) and base it on a repayment mortgage.....

[Sarnie]

Who is your lender?

[croyde]

Thanks Sarnie, you have been very helpful. Cheers