My partner of five years and I are splitting up (his choice not mine) and I want to keep the flat we jointly own. We bought it in November 2010 for £230,000 with a mortgage of £185,000 and a deposit of £35,000.
My partner of five years and I are splitting up (his choice not mine) and I want to keep the flat we jointly own. We bought it in November 2010 for £230,000 with a mortgage of £185,000 and a deposit of £35,000. There is a deed of trust for the money put in – £25,000 goes back to me or my mother as she gave me that much to put down as a deposit. As both my partner and I each put £5,000 in cash towards the deposit, the rest is split 50/50.
The flat, which is in Brixton, has gone up in value with estate agents estimating an asking price of anywhere up to £350,000 (although realistically the actual purchase price would be more like £320,000 to £330,000). What kind of offer would it be fair for me to make to buy my ex-partner out?
To take on the mortgage I would have to reduce it as well, as I can only borrow up to £165,000 based on my self-employed status and variable income (I wasn’t self-employed when we bought the property). Any help and advice of what would be fair, and regarding stamp duty implications, would be very helpful.
To be able to buy out your ex-partner, you need to take on his share of the mortgage and pay him cash for his half of the value of the flat that you agree on, less the size of the mortgage at the time you took it on and less the £25,000 your mother gave you towards the deposit.
Assuming you have a 25-year repayment mortgage and have been paying interest at 5% for the past three years, that would mean taking on an outstanding mortgage of approximately £173,000 (as about £12,000 of the original £185,000 would have been paid off over three years). I’m afraid the only way of reducing the mortgage to £165,000 is to overpay it. Your lender won’t just reduce the loan to suit your change in circumstances.
If you were to buy out your ex using an asking price of £330,000 for the flat, as well as taking on his share of the mortgage you would also need to find cash to pay him for his share of the flat’s increase in value since you bought it. That would be calculated as half of: £330,000 minus the £25,000 your mother contributed minus the outstanding mortgage debt (assumed to be £173,000), which comes to £66,000 that you need to find. So, sadly, to be able to buy out your ex you need him to agree to use the value of the flat when you bought it and simply pay him £5,000 to return the cash he paid as a deposit. Whether that would be fair is up to your ex-partner to decide.
As far as stamp duty land tax (SDLT) goes, it would be payable on the amount of mortgage you took on plus whatever you pay him in cash. But you would only have to pay SDLT if that total was in excess of £125,000.