Sorry OP, I can see how it must be hard to feel that your sibling (and by extension your side of the family) is the one coming off 'worst' but honestly, open your eyes! You are literally disappearing up your own backside here- busting a gut to frame every aspect of this as 'poor bumbling easy-going bro versus ball-breaker controlling career wife' when tbh every single one of your posts is practically red flag bingo to anyone who spends even a short time on these boards hearing about marriage break ups. Even without the cheating, I would bet my hat that your brother has been the one to fuck up this marriage and I would LOVE to hear his ex's side of the story.
But let's start from the beginning. Let's say your bro had indeed ring fenced his 80k. Well to start with, he'd be on a sticky wicket with it anyway, even if he'd originally bought the house himself on his own!... you seem to think that now they're splitting, there should be some sort of automatic 'rewind' to the point where they were both single, autonomous agents and the assets are split accordingly. Um, that's not what they are. They are a married unit with children. Even if his name alone was on the house, the court would look at the assets and the first priority would be housing HIS children, HIS dependants (and yes YOUR father's grandkids) - not giving some mythical single man his 80k back - that man doesn't exist any more, and obviously neither does the 80k in any transferable format. And the house would still be an asset of the marriage regardless! And, and - they bloody MOVED to a bigger house! Where the fuck do you think your brother got approval for that from? That's right, his awful ball-breaker of a WIFE who worked hard enough and earned enough for the mortgage to be approved!
In a situation where there is little equity, selling and splitting is madness - so you lose the children's security in order to give both 'camps' - one of which needs to provide a permananet stable base for the children - the square root of fuck all, so NOBODY gets housed. What is happening gives everyone the best chance of security. Note that it's his ex here who is taking on the lion's share of future graft. She's going to be the one earning more, using it to support their kids plus paying off the mortgage while he essentially goes back to having zero actual responsibility. How could they even do it the other way around?! - presumably he would not be able to maintain the mortgage on his own?
Most of all though I would really, really advise you to keep well out of this and STOP taking your brother's word - direct or implied - for what's been happening. Your posts are cliche central and I am totally unsurprised that you've had so many replies all basically raising their eyebrows. Your brother sounds bloody awful and I'd bet my bum that there's a pattern of lazy, twatty behaviour here and you just don't know the half of it. Wait and see what happens longer term, because I will make a prediction here - in a couple of years time it will be crystal clear who is taking responsibility, who puts the children first and it's not going to be the 'great dad' who is so committed to his children's security that he fucks around on the side. And if you publicly 'side' with your brother to the extent you're doing here, the end result could be that your family become distanced from the children longer term.
Like I said, I'd love to hear what his ex's side of all this would be.
I asked about him getting custody of the kids but he says that he wouldn't do that to his ex and that he sees her as the main parent anyway. - because she IS the main parent maybe, in addition to being the main wage earner, and he knows full well that there's no way he'd have a case for residency compared to the parent who actually does all the shit?
I think she's always been quite controlling tbh and ex is more laidback. Yep, that's absolutely the line trotted out by every shitty dick-led twat whose wife has the temerity to be the one focused on earning, caring and taking responsibility for the kids. You think he's more of a 'natural dad'? - err no, by definition, choosing to have an affair when you have young kids, instead of having the guts to end a marriage cordially, is the most shitty dad thing you could do. It's blatantly obvious from every single point you make that your brother thinks mainly about himself - even now, your concern is that you can 'see him sliding right down after this' - really? Rather than working to set himself up so he can be a good non-resident parent, he's going to need looking after as it's all going to be toooo much for him?
He stayed home with their youngest when she was born and for the second she insisted on taking a year off. - that's actually one of the most telling points you make. His wife was HAPPY to let her DH be the stay-at-home and she continue at work - that's a big thing with your first - I guess she just knew there's no way he would have been able to step up and provide, or maybe yes she wished to work, either shows that she assessed what the priorities were and got on with it. Clearly, it didn't go well and after EXPERIENCING it, she refused to go with that plan for the second. I'm guessing that the 'natural dad' wasn't maybe such a great option after all.
Honestly I think your brother has come out of this rather well. If they weren't married, sounds like right now he'd be looking at a house repossession, no £20k and no share in his rather more adult ex's pension.