Weighing up options re. impending divorce

[dotdotdotdash]

Hello, I'm looking for opinions and insight about possible ways of dealing with separation of assets as me and DH are planning to split.

We have a house with freehold that we can sell and split the equity. The house has development potential though and I could build up one storey and divide into two flats. If I did this, I would have to take on the mortgage and buy out DH to the tune of £200k. So the mortgage would be £375k.

To do the development work, I would need to borrow a further £50k at some point down the line. I'm currently 45 years old, earning £39k and would have to extend mortgage term to 25 years and get a lodger to afford repayments in the short term. In the medium term (5-10 years), I could convert the house, sell one of the flats and clear the mortgage entirely

Is this a mad plan? And more importantly, what would be my chances of finding a lender who would extend my borrowing to the required £375k. The house itself is currently valued at £700k.

It sounds a big mortgage on a 39k salary.

And more importantly, what would be my chances of finding a lender who would extend my borrowing to the required £375k

On £39k? Zero I would think

You’ll struggle to buy your DH out too. Borrowing is about affordability and you’ll struggle to get that level.

No lender would go any where near 9.5 times salary.
You may well even, as others have said struggle to raise the £200k

@dotdotdotdash you need to speak to an independent mortgage broker.

Some lenders have a “rent a room” product - see Bath Building Society” where the lodger income is considered in lending.

However, I still don’t see that you’re going to raise £375K, even with that. But I don’t know how many rooms you have to rent out, or market rate in your area.

You need to look at this from other angles too:

• can you change the £200K equity that you need to buy out? For example, would you be owed anything from other assets - particularity a Pension Sharing Order - that you could trade for more house equity to you, reducing the mortgage you need?

I’m curious about the £50K. You say that you need to extend as well as subdivide. £50K isn’t a lot... a new kitchen and bathroom for Flat 2 could take up £10K of that, and that’s separate to remodelling, building, new boiler, splitting the electrics and water... Have you had quotes to arrive at that £50K?

Have you any way of raising that £50K in future?

Think about your final aim here... it isn’t to stay in your house. It’s to have a flat with mortgage paid off by sale of the second flat. So - you’re going to end up in a flat.

If you just a different flat now, with your equity + mortgage, you’ll save a lot of the interest on the huge mortgage you’re talking about taking on - if you can get it. You’ll save £50K (or whatever the conversion cost is). You’ll save the council tax increases for having lodgers. Possibly save the tax on income from lodgers (if about about £7Kpa) You’ll save the conveyancing costs of selling Flat 2.

Have you fully researched the Capital Gains Tax implication of subdividing and then selling a portion of your home? Your new flat is not your Primary Residence. There are allowances, but so you know what these are? If you’re not covered and you’re hit with CGT, you might find that it wasn’t worth it all.

Not financial - you’ll save having your share with lodgers, the hassle of getting lodgers, the hassle of managing the remodelling and sale of Flat 2. Which you may not be bothered by, but it’s something to consider.

Have you really costed it all out, mortgage interest over the years included?

Missing word there!
Consider if you BUY a different flat now.
With your £200K now and chucking income from a lodger at the mortgage - you could be mortgage free more quickly and more easily.

Thanks for your advice and opinions, especially you Ellisandra - lots to think about there. I had not even considered Capital Gains Tax. I've looked at some mortgage calculators and they quote maximum borrowing of £170k and I'm sure even specialist lenders would go near £375k, so it would require borrowing from friends and family. Plus I love my own space and don't really want lodgers. And you're right, the £50k development budget would be inadequate; and there is a shared chimney which would have to be removed to make this work, so a party wall agreement would be far from guaranteed.

Thank you for the reality check. I'm going to sell, take my share of the equity and look for a doer-upper flat.

Sell the house, split the proceeds & purchase a property with an extra bedroom - let out the bedroom & make up to £7k tax free

Work out the above scenario over 3 years and decide which one is achievable & which would you make £20k clear profit