Q My partner is about to move in with me and is contributing £10,000 from the sale of his flat. I however already have a hefty equity of around £210,000. The property is worth around £330,000.
When he moves in I am going to put him on to the mortgage and then we will immediately re-mortgage to pay for home improvements of around £70,000. We will then have a total mortgage of around £160,000 which we will be paying off jointly in 50-50 payments. What is the fairest way to divide up the shares in the house as tenants in common? Also, I have two children from a previous relationship (he has no children), so what would happen to their inheritance if I died? Do I need a life insurance policy? I’m finding it all very confusing and would appreciate your help.
AB
A Your most pressing question is: “what would happen to my children’s inheritance if I dropped down dead tomorrow?” If your answer would be: “It’s OK because I’ve left everything to them in my will which I updated after I split from their father” then there’s nothing to worry about. However, if you don’t have an up-to-date will – or no will at all – before doing anything about adding your new partner to your mortgage, you need to get a will sorted. Drawing up a will can also clarify your wishes about who would look after your children if you were no longer there to do it. You might want to investigate buying life insurance so that your mortgage could be paid off in the event of your death and/or provide your children with a modest income.
As far as adding your new partner to your mortgage goes, I’d keep it simple. Rather than adding him to your current mortgage (if your lender would allow this), I’d go straight to taking out a joint mortgage with him. But you might want to check your sums before you do that. If your house is worth £330,000 and you have £210,000 equity in it, the amount remaining on your current mortgage would be £120,000 so to be able to fund £70,000 worth of home improvements, you would need a new joint mortgage of £190,000. Although you could bring that down to £180,000 if you put your partner’s £10,000 cash contribution towards the building works.
I would also keep working out his share of the property simple. As far as I can see, the fairest way would be to add his contribution of £10,000 to his half of the joint mortgage and then divide the result by the value of the home multiplied by 100 to get a percentage. So with a mortgage of £180,000 and a cash contribution of £10,000, his percentage share would be just under 30%. Your share would then be 70% which is what your children would get but only if you make a will and you and your partner jointly own the property as tenants in common.
If your partner thinks he should get more than 30%, I’d be tempted to take a step back and reconsider whether joint ownership is the best option. However, I wouldn’t hold back in making sure your children are properly protected after your death.
