Joint Mortgage with Brother - Want to Move On

E

eimaj

Registered User
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Hi all

I hope you can help me out with my predicament. I'm in a joint mortgage with my brother, both living in the house, both named on mortgage. We both now have partners and want to move on. Here's the details usually asked:

Mortgage balance: €300k
Current value of property: €190k - €210k
Lender: Ulster Banks
Interest rate: ECB rate
Tracker or not? Tracker
Term: 35 years. Bought in 2006
Total monthly repayment: €1,081
Your share: Half €541.50

I'll briefly explain the circumstances in point format:

  • Originally, my brother and my mother went to get a mortgage together, as I was on a 3 month temporary contract in work - I would "rent" from my mother
  • Ulster Bank gave me a mortgage, with a letter from my employer saying I will hopefully be kept on - quite wreckless!
  • I want to buy a new house
  • I have approx €30K in savings, and will be getting inheritance of €56K
  • I am practically debt free (small credit union loan of €3,000 which will be finished in November 2013)
  • I work in the Civil Service (permanent), earning just over €30K per annum
  • I have one dependant child (11)
  • I visited all major banks, and asked them for my mortgagability, if I am out of the mortgage with my brother - they ranged from €100K to €123K (I hope to go to a mortgage broker, and possibilty get more)
  • I hope to buy a 3 bed semi locally for €180K - €200K
  • The problem is getting me released from my existing mortgage
  • My brother is happy to stay in the house, with his girlfriend (she is living with us at present, and paying rent)
  • He works in the public service and earns approx €49K a year (permanent)
  • He is in debt of approx €35K
  • He is not in a position to buy another house, not mortgagable, no deposit, no savings etc.
  • We have talked to Ulster Bank
    he can take over the mortgage in his name only, if he gives the bank €50K or
    he and girlfriend can take over the joint mortgage and keep the same terms & conditions,     but she is unwilling to do so, as the potential negative equity is too high, and it wasn't her debt in the first place (understandable!)
  • We do not want to sell, as the negative equity will cripple us - also the house needs money pumped into it to get it up to selling standard
  • My mother was willing to take over my part of the mortgage, to release me, (our original deal!!) but was told that she would need to reside in the property for her to take on that half - that is not an option, as she has a family home herself

Any possible solutions would be welcomed! If you need any further information, let me know.

Thanks
eimaj
 
We have talked to Ulster Bank

Option 1
- he can take over the mortgage in his name only, if he gives the bank €50K;

Option 2
- him and girlfriend can take over the joint mortgage and keep the same terms & conditions, but she is unwilling to do so, as the potential negative equity is too high, and it wasn't her debt in the first place (understandable!)
Click to expand...
I presume that these are two separate options. Fair play to UB for allowing the girlfriend to take over your name on the mortgage.

From the girlfriend's point of view
She can buy half a €200k house for €100k.
The repayments on a mortgage of €100k for 28 years at 4.5% SVR would be €523.

Her share of this cheap tracker: €541, so there is very little difference in actual outgoings.

She is guaranteed the cheap tracker rate as long as she stays in the house. The SVR could well go up even if ECB rates fall.

A mortgage of €100k @4.5% is better than a mortgage of €150k at cheap tracker, but it's by no means €50k better.

Here are the outlines of a few solutions...

Solution 1
She agrees to take over your share of the mortgage for €150k.
You, your brother and she do a side agreement.
She has the right at any stage to sell the house
You will pay her the negative equity
If house prices don't rise, her monthly payments will be gradually reducing the negative equity anyway. She is paying around €2,000 capital each year. After 10 years, the mortgage would be reduced by around €25,000. If the value of the house rises, you and she could well be out of negative equity and she might still have her cheap tracker.

This would work well if she can trust you to pay off the shortfall, if it comes to that. Could your mother act as guarantor?

Solution 2
Why do you want to buy another house at all?
Just rent another house for the time-being.
The girfriend's rent will cover the interest on the mortgage comfortably. You will have to pay some of the capital, but that is fine, as it's reducing your negative equity.
When the negative equity is reduced, the girlfriend may well be happy to then buy out your share.

Solution 3
A mortgage of €100k @4.5% is better than a mortgage of €150k at cheap tracker, but it's by no means €50k better.
Would you consider paying €20k off the mortgage? She would then be borrowing €130k on a cheap tracker to buy €100k worth of house.
If they are planning to live in the house for a few years, €130k on a cheap tracker is probably equivalent to €100k @4.5%.

Solution 4
Could your mother remortgage her home and borrow €50k to lend to your brother? If the interest rate is 3% higher than the tracker, this will cost around €1,500 per year.
 
The girlfriend if she puts her name on that mortgage is responsible for 300k of debt assuming the mortgage is jointly and severally liable and most are, I'm not surprised she is not keen. I really don't think it is a solution bringing her into the problem.
 
Good point, which I had overlooked.

I still wouldn't rule it out. The OP could pay the €50k to reduce the negative equity and the girlfriend could pay it back over time.

Brendan
 
Your solution is quite simple and you're lucky you can do it. You pay the 50K to your brother to get your name off the house. I would beg borrow or steal to do this based on the facts you've presented. It's so unusual to get a bank to agree to this that you need to grab it. It must be because he is a civil servant.

You actually have 30K of this 50K, can you get the other 20K from wherever. Maybe you can leverage the inheritance.

You actually owe half of the NE in any case so it's a win win for you and your brother. You get out of this mess and he takes over the property preventing future problems.

If I were advising the girlfriend there is no way I'd recommend she become part of your brothers mortgage. If they get married and intend to live there then it would be a different story.

If I were advising your brother, he should be doing something about having so much unsecured debt and no savings. Lifestyle problem perhaps. And if that is the case it's very pertinent to you as you need to extricate yourself from him.

After that is all sorted and not before you look at what you have left and then make the decision to buy. You wish to borrow 4 times your current income. Can you afford a mortgage of 123K on your current salary on your own? How much would this cost? I note that you've actually factored in your savings and inheritance to this without thinking about the NE your owe on the property you currently own.
 
I'm surprised the bank will let him take over the mortgage solely if he reduces balance to 250k, still seems high for a salary of 49k based on their present underwriting. I wonder are both options separate or is it pay off 50k AND add girlfriend to mortgage?
 
It's intersting to see the different views. I strongly disagree with the following:

Your solution is quite simple and you're lucky you can do it. You pay the 50K to your brother to get your name off the house.
Click to expand...

You actually have a very profitable investment.
You have a tracker mortgage of €150k on a house worth €100k.

The rental income for your half of the house would presumably be around €6,000 a year. The interest you will be paying on €150k would be €3,000 a year. So this is making a profit of €3,000 a year.

You have good tenants - your brother and his girlfriend.
There won't be much management.
You have the savings with which to make up the cash-flow shortfall each month.

This is a good long-term investment .

You should not pay €50k to give up a good investment.

Look at it another way, if you just rent out your bit for the next 28 years, you will own the house mortgage free.

Brendan
 
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