Complex situation. What would you advise?

[latesummerearlyautumn]

I own a house, outright, no mortgage. It is worth around £140,000

DP owns a house, with a mortgage, which is worth around £450,000.

We have seen a property we both like and are keen to buy. Rather than going through the complexities of selling two properties, DP has suggested we remortgage mine with us both on the mortgage, sell his (houses here tend to go fairly quickly) and then both get a joint mortgage on the new property.

Are there any drawbacks I haven’t thought of?

How much is the mortgage on his current house?
How much do you each earn?
How old are you both?
How much will the new house cost?

What is his equity?

Assuming he had more than £140k equity in his £450k home then he will be bringing more assets into the joint home than you will, so it doesn't sound right for you to gift him half your house.

The sensible thing, I think, would be for you to keep your house 100% yours and you arrange the finances of the shared house so that he owns a greater share. I can't remember if it's joint tenancy or tenants in common, but one of them allows unequal shares.

I don't know enough of the details to be certain but I think what he is proposing means that you'd have to sign over half that cash borrowed against your smaller asset to him, before you get any stake in either of the other 2 bigger properties. You jointly taking out a mortgage on an asset you already own is basically you handing him a big fist of cash, which you'd become liable to repay if he were to walk away with it. However sure you are that he won't do that, it seems an unnecessary risk for minimal benefit. Keep your house, in your name, and share the new house even if it means having unequal shares. I imagine you could rejig the ownership of the 2 remaining properties down the line.

I think if yours is let out but not making a profit you need to consider is it likely to rise in value? If not makes more sense to sell it. It could be you could temporarily get finance so that you don't need to sell both to buy the next one but sell yours as soon as you can. A mortgage adviser should be able to go through possibilities.

I would also get legal advice esp as you aren't married on the best set up. If it were me I would sell both and buy one together, ideally 50-50 and get married (assuming you want to marry).

OP I’d consider the following in your situation:

1. Why your rental makes no profit with no mortgage? Remember you’ll still pay tax on 100% of the rental income as there is no longer mortgage interest relief to offset on a BTL. Getting a mortgage does release equity but won’t improve your profitability as a LL.
2. If you do release equity in order to buy into a new property together, each of you should get a deed of trust before you buy to protect your own interests, especially as you are not married. Also, each of you should make sure you have a will.
3. SDLT implications - you’ll be paying more as you own two properties. At the moment the value of your BTL as you state won’t attract SDLT but if your valuation is incorrect and you wanted to just add your OH to the deeds with no mortgage and that share is above the SDLT at any point, it will need to be paid. Thresholds do change and may do in the future as the treasury seeks to try and gain additional income post pandemic.

I know you don’t want the hassle of selling two properties but you will still have the hassle of selling two with your proposal… solicitors, mortgage arrangement, surveyors etc. Personally, if your BTL is not making a profit but may be attractive in the first time buyer market, I’d sell that first, bank the money (split between two different banks to gain maximum protection) then use that money (clearly defined in a DOT) as equity in your new joint home.

Good luck tomorrow.

There are quite a lot of misunderstandings here which is my fault, I obviously haven’t been very clear.

At the moment, we live together in DPs house. Mine is rented out and it is currently bringing in a profit obviously as there’s no mortgage to cover. However, if we remortgage, this would cease to be the case.

He probably has around £100 equity in the current house. Maybe a bit more. It depends what it sells for.

We are both quite high earners, he is the higher one at £73,000 plus other perks such as phone and car allowance. I earn £42,000. No other perks (sadly.) Both 41.

Given that you have existing tenants in your property you might be able to sell it to a BTL landlord as an investment with tenants in-place rather quicker and easier than trying to sell either property to an owner-occupier type buyer. If you then had £130,000 in the bank (assuming a slightly lower value if restricted to BTL buyers and accounting a bit for legal fees) and were mortgage-free, would that be enough to buy the new place before you start marketing DPs property? I think you can avoid (or get a refund on) the elevated stamp duty if either the new property is in your name only or if DPs property is sold within the next year.

Remortgaging your mortgage free property effectively gifts your DP £70k. It's very generous of you. There will be another house. Take the time to sell yours or his or both.

I haven’t read all of the comments so apologies if this has already been covered, but I am a property solicitor and find it fascinating that everyone assumes that you have to serve notice on a tenant to sell a property with vacant possession. You can quite easily sell a property with a sitting tenant and in fact this often makes it more attractive to potential landlords as they don’t have to faff around trying to find a new tenant. Obviously the potential downside is that the pool of purchasers is potentially smaller as you’re effectively excluding buyers wanting to live there themselves (although they could buy and then serve notice on the tenant, but appreciate you’re average Joe isn’t going to want to do that), but if it’s worth £140k then sounds like a prime property for a landlord to snap up as a rental anyway

Also don’t forget that you can own property as tenants in common, so if there is an element of financial imbalance somewhere once you have done all of the calculations to redeem your partner’s mortgage and so on, this can often easily be dealt with by the percentage ownership of the house(s) either in the TR1 transfer itself, or a separate deed of trust (I.e you don’t automatically own a 50/50 share, the percentage share that you do own is dealt with as an entirely separate asset to one another and doesn’t automatically pass to the surviving owner should one of you pass away for example)

If i was you i would keep your home/BTL in your name.
There is no mortgage so clearly generating profit or income (despite you saying it doesnt?)

It is tax efficient to do this as you are the lower earner.
Get the new house in both names (tenants in common) with his deposit ringfenced (ie all money from sale of house remains his and you have 50 /50 rights on remaining equity assuming you split the mortgage 50/50) split costs of buying equally.

I think you wont do this as you seem to be wilfully trying to fuck up your own financial security for little to no reason so... 🤷‍♀️🤦‍♀️ good luck?

What a rude, obnoxious comment.

This just is the spirit of MN now, isn’t it?

It would help if you bothered to read the thread but you won’t read it for some fucking reason so 🤷🏼‍♀️ 🤷🏼‍♀️🤷🏼‍♀️

See how rude it is?

It is potentially complex, if I was in your situation, I would seek legal advice before I made any decisions. Good luck.

@Roselilly36

It is potentially complex, if I was in your situation, I would seek legal advice before I made any decisions. Good luck.

This is your first priority, to guide you on all of the financially fair options and their consequences - for both of you.

Don’t make rush decisions for a house that has come up.

Are there children involved - or likely to be in the near future?

I would think in terms of fair being # of houses you jointly own. It should be value of assets. If you’re actually thinking of being 50/50 as if you were married.

So you leave your house as is, at £140k your name only.
Then £140k of his equity from his house he ring fences as his part of the deposit in the new house and you split the rest of the equity as a joint deposit.
So say he sells his £450k home and that releases £200k of deposit. £140k equal to your house is his starting equity. Then you split the remaining £60k. The house deeds can be drawn up such that you’d be tenants in common on the new house instead of joint tenants. So, if £30k is your “share”, then it would be 15% you own new house and pay 15% of mortgage bill and he’d own 85% and pay 85% of mortgage bill.

(You would be paying 100% of maintenance and costs of your house...so it’s fair).

*would not think in terms of # houses. Lost a vital word there.

@latesummerearlyautumn

What a rude, obnoxious comment.

This just is the spirit of MN now, isn’t it?

It would help if you bothered to read the thread but you won’t read it for some fucking reason so 🤷🏼‍♀️ 🤷🏼‍♀️🤷🏼‍♀️

See how rude it is?

Cant see who posted a rude obnoxious comment, but latesummerearlyautumn your comment is horrible.

You can fence off money whilst still being joint owners of a new property. My DP and his previous partner did exactly that, so when the house was sold she got her money back.

So my advice would be your partner sells his house. Uses his equity as a deposit for the new house and he sets that money aside contractually and uses it as a deposit. Then you can be joint owners of the new house and pay the mortgage jointly.

If you sell he then gets his original deposit back plus 50% of any equity made on the new house.

Lots of good options on the thread to choose from OP. Hope you and your DP find one you can both live with!

He does earn significantly more than you. Depending on how you are splitting your day to day finances currently at his house can shed some light on to how you are comfortable as a couple with your joint and individual finances.
I don't see why you don't sell your own home, it seems a much more straightforward way to go and is not complex at all. I've just sold two tenanted flats to buy my current home and they were smoother than selling my own home!
But back to what you mention before: trust. When I bought a house with my not yet husband, I sold my house and paid the whole deposit (about £200k) and he took out a huge mortgage (£1m). He earned 20 times what I did. But our attitude was that any money was our money, not he pay 80% or whatever as he earned more. He did have an ex wife and two kids to support, but after those expenses everything went to our house and family. He invested in pensions for both of us, paid the mortgage and household bills etc. And when I left my job after having my second child, he paid my credit card bill too. We discussed any major purchases like a TV. So, I guess it's your attitude as a couple.

Your property will still make the same income and profit it always have but you will be securing a mortgage on it, to fund your new house, the costs associated with that loan should be assigned to the new house.

In total, you have £140K equity and your partner has £100K.

If you take the equity out of your house by remortgaging, it will cost you £35,000 over 25 years at 2.5%.

If you sell the house, it will cost a minimal amount to release the funds but you will loose out on 25 years of rent and any potential increase in the capital value of the house both of which will be taxed.

If you have more than one property in your name or in your partners name you will pay higher stamp duty, which might be refunded if you sell the additional property / properties in the required time limit.

You my choose to retain a BTL property.. other yours or his.

It would be cheaper to use a cash deposit from the sale of his house, to purchase your joint house and get a mortgage for the rest than to have a BTL mortgage on your house and a residential mortgage on your joint house.

Good luck in weighing up your options.

No please don't take a joint mortgage on a property you own outright - not even sure you can do this! Keep the flat in your own name. New mortgage on new house only.

I think I’d keep the property in my name with no mortgage.

I’d get DP to sell his house, and use the equity as the deposit. If you both earn over £100K jointly then you have no issues with getting a decent mortgage.

Protect his deposit legally in case of you splitting up. Both pay into the mortgage 50-50 (or he can pay more if he wants, and reflect this in the tenants in common split).

There doesn’t seem much point faffing with a BTL mortgage on your property, other than psychologically it would make him feel ‘more equal’. But financially you can achieve this just focusing on your new joint property.

@callmeadoctor I think OP might be referring to my comments…! Seems like free legal advice/observations from a 36 week pregnant solicitor struggling to sleep but wanting to offer some generic assistance to be helpful rather than specific to the facts (of which I can categorically tell you there are only scant details of from the OP and would not constitute enough information to obtain proper legal and/or financial advice from a solicitor, agent or accountant) warrants abuse and swearing…!

What a shame.

@callmeadoctor i suspect it was my post which contained good advice which several others have also given... which the OP ultimately won't take because it doesn't involve needless financial entanglement and reducing her own financial security ...