Wealth Check: How to swap one home loan for two love nests
Sunday 30 April 2006
The problem: A joint mortgage has to be untangled
Sarah Smith from Nottingham is in the fortunate position of having a foot on the first rung of the property ladder. She owns a home jointly with her brother, James, but now wants to extricate herself and buy a new place with her boyfriend, Tim.
When the siblings bought their current home for £108,000 in September 2004, they each put up a £5,000 deposit. They then took out a joint mortgage for £98,000 - a three-year fixed rate deal with the Woolwich at 4.15 per cent.
As James is getting married this year, Sarah wants to transfer her share of the property and the mortgage repayments to Tara, James's wife-to-be.
"We've not had the property valued officially but we estimate it's now worth around £120,000," she says. "I want to take my half of the increase in value [since September 2004] - around £6,000 - plus the £5,000 I paid as a deposit."
Working as a primary school teacher, Sarah earns £19,000 a year. She pays £60 a month into the teachers' pension, which is a final salary scheme. At present she has little in the way of shorter-term savings (other than £300 in premium bonds) but is looking to change this.
"Last month, I set up a savings account with ING Direct - paying 4.5 per cent - and I'm hoping to pay £25 a month into this account."
She also wants to pay off her debts. "I owe £800 on a graduate loan from Barclays," she says, "but I'll finish paying this off this year."
She has no protection policies in place.
The cure: Keep the same lender but get a new loan
Sarah and her brother should have no problem in moving - or "porting" - the fixed-rate deal to James and his wife-to-be, according to Drew Wotherspoon from independent financial adviser (IFA) John Charcol.
"The lender would perform an internal remortgage, so there would be forms to fill out and costs to be met in arranging the new set-up, but these would be fairly small."
However, Ben Yearsley from IFA Hargreaves Lansdown warns that while it is "relatively straightforward" to take Sarah off the mortgage, the lender will want to be certain that, in replacing her, Tara has sufficient income to pay her own share of the mortgage.
Sarah should also get the house valued professionally, so that she doesn't miss out on any growth.
"It is then a case of agreeing an amount with her brother, and deciding how he is going to pay her." If James does not have the cash to hand, he may have to take out a loan or increase the mortgage to pay her off. "It would be best to do this at the same time as changing the mortgage deeds," says Mr Yearsley.
Aside from the property, Mr Yearsley says Sarah needs to consider her long-term financial wellbeing in terms of savings and protection products.
Mike Pendergast from IFA Zen Financial Services points out that if James and Tara decide to increase the mortgage to pay off Sarah, the new loan will need to include the existing £98,000, plus the £11,000 she is owed - totalling £109,000. If the property is valued at £120,000, they will be borrowing just over 90 per cent loan to value.
This means that the couple could have to pay a higher lending charge (imposed by some lenders to protect themselves in case borrowers can't meet their repayments). But Mr Wotherspoon notes that James's existing lender, the Woolwich, is one of the few not to impose this.
"Sarah could then receive her £11,000 from the new mortgage, leaving her brother and Tara with joint ownership of the property," adds Mr Pendergast.
As Sarah is looking to buy a new property in the near future, she should not invest her equity from her former home (£11,000) in anything risky, says Mr Yearsley. "It will only be a short-term investment so she could put it in her ING account."
Mr Wotherspoon adds that Sarah should build up an emergency cash fund. "It is always sensible to have at least three months complete expenditure in an instant access account for emergencies."
The best place to save this rainy-day money is in a tax-free mini cash individual savings account (ISA), says Mr Yearsley.
In any case, he stresses that Sarah should try to increase the amount she currently saves regularly - to cover the cost of holidays, for example. "This cash fund does need to be built up substantially - by paying in more than £25 a month."
Mr Yearsley says that Sarah needn't worry just yet about long-term savings plans, such as equity-linked ISAs. She has other priorities to consider first.
"But in due course, as her salary increases, a stocks and shares ISA should definitely be considered."
Sarah needs to check the amount she is paying into the teachers' pension scheme, as £60 per month seems rather low, says Mr Pendergast. "On an income of £19,000 she should be paying 6 per cent - which equates to nearer £95 per month."
Mr Yearsley urges Sarah to check what protection is provided by her employer, such as income protection, if she is unable to work. She may then want to consider additional insurance policies.
If you would like a makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email firstname.lastname@example.org
- 1 This restaurant has misunderstood the concept of 'cheese and biscuits'
- 2 Raif Badawi, the Saudi Arabian blogger sentenced to 1,000 lashes, may now face death penalty
- 3 Delhi bus rapist blames dead victim for attack because 'girls are responsible for rape'
- 4 PornHub turns masturbation into energy in bid to save the planet
- 5 Have sex with your iPad thanks to the new sex toy no-one asked for
New theory could prove how life began and disprove God
This is what it's like to be dead, according to a guy who died for a bit
End of the licence fee: BBC to back radical overhaul of how it is funded
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Ukip would cut billions from Scottish budget to fund English tax cuts
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
iJobs Money & Business
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads