What the actual fuck.
He clearly doesn't know ANYTHING about divorce law in the uk; who you tell about the affair has zero bearing.
Things that have a bearing:
- his earning capacity vs yours
- you being a SAHM for x years
- the ages of your two children & amount of input/parenting they need in the immediate, medium and long term law
- marital assets
- pension pots (now and projected)
- length of marriage
You say your children were suffering with him being out of the house. How exactly? I seem to recall your children are v little; much smaller children deal with marriage breakdown better as they don't have the Disney memories to fall back on. they can be more accepting.
So anyway, your husband, having cheated on you repeatedly, told you he's in love with another woman, is now threatening you over custody and finances, and refusing to move out.
Seriously if you accept this crock of shit as an acceptable way of life, you're being a complete mug.
I'd be incline to tell the OW DH. I'm sure he wouldn't mess about putting her in the street, and then your "D"H has someone to move into a rental with.
Honestly get shot of this cunt, get a lawyer working on the divorce and don't take any of his shit. So your kids suffer (as you see it) by not having parents in a relationship. Who caused that? Why are you letting him guilt you into solving that problem? It's his fault, he needs to bear the responsibility.
Also, the other worry is if you stay with him til the kids are older and he (inevitably) leaves you then, your divorce claim may very well be reduced as clearly kids who are older need less maternal input and therefore you don't need maintenance during that time.