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I have a dilemma. I am divorced but still live with my ex-partner and two children.
We have put the property on the market twice and cannot sell it unless we accept £70,000 less than we paid for it. Neither of us can afford a home on our own, so we’re stuck.
Can we take out a second mortgage on a two or three bedroom property of similar size and use it as my ex’s main home, while I remain in our home, with both mortgages in our joint names?
We would remortgage the first house to raise the deposit for a second house. The first property has an outstanding mortgage of £256,000 with monthly repayments of £1,900 per month. The second property cost £450,000.
The hope would be that when interest rates drop substantially, we can transfer each house into our individual names.
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Can they have two joint mortgages?
David Hollingworth replies: The breakdown of a relationship is a difficult time and financial concerns will often be at the heart of the issues that need to be resolved before you can all go your separate ways. Ownership is always a big part of these financial ties, especially when children are involved.
You have clearly made some pragmatic decisions to ensure that you can keep the family home intact. There are a number of factors that must be resolved with a mortgage provider if a couple wants to separate, which I will explain here.
Can you pay the mortgage on your own?
There will often be a wish to continue living in the family home, but in order to fully divorce, the mortgage will have to be taken out in one name by one of you.
It may also be necessary to buy out the other owner. So you not only have to demonstrate that the existing mortgage is affordable for you alone, but also that you can repay part of the additional loan on top of it.
The mortgage provider will therefore have to ensure that the remaining borrower has sufficient income to pay the new, larger mortgage.
It sounds like these affordability restrictions are not news to you and are likely critical to the problem you are facing.
To provide your ex-partner with some surplus value, you must be able to take over the current mortgage and possibly more.
Affordability is also key to the ability to purchase an additional home. To maintain the current mortgage and borrow enough to purchase a second home, you must be able to demonstrate sufficient income between you to cover the total loan. This can be difficult unless one of you or your ex-partner earns substantially more than the other.
> True Cost Mortgage Calculator: Check what a new fixed rate would cost
Financial headaches: Property is always a big part of the financial ties after a divorce, especially if children are involved
What are the additional costs?
In addition to having to borrow more to raise the down payment, there must also be enough money available to cover all purchase costs, including investigations and legal fees.
If you or both of you bought a second home while it was still on the deed of the existing one, there is also a surcharge on the stamp costs, because the second home is regarded as an additional home.
That adds up to an extra 3 percent on top of standard land tax, resulting in a stamp duty charge of £23,500 on a purchase price of £450,000 – £13,500 more than if it was your only home.
To determine whether your proposal is feasible, look at your total joint income plus the total amount for the deposit and other costs.
While lender affordability will be based on you and your ex’s specific income and expenses, it’s reasonable to expect the total loan to be approximately 4.5 times your combined annual income.
A mortgage advisor can give you a customized maximum loan amount and outline the monthly payments that come with it.
– When will interest rates fall? Predictions about when the base interest rate will fall
Clubbing together: To maintain the current mortgage and borrow enough to buy a second home, they would need enough income together to cover the total loan
Is it a good time to sell the property?
Unfortunately, this may lead you to the conclusion that selling the property is the only practical way to go your own way.
Not being able to take out a separate mortgage could mean that borrowing the extra money for a new home could be out of reach.
It would also only serve to further tie your finances together and incur additional costs, despite the fact that the goal is to separate.
Property market activity has been hit by the rapid rise in interest rates, but mortgage rates have improved significantly since last year’s volatility.
This is slowly reflected in an improving purchasing market. Rightmove’s house price index recently indicated that the average asking price is rising, although it is still over £4,500 less than this time last year.
While you may have to compromise on the sales price you want to achieve, there are signs of an improvement in market activity.
That still looks like this could be the cleanest way for you to untangle your finances and move any equity into your own properties.
You can also consider whether a smaller rental property is a short-term solution for either of you.
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