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Your family home: case study 2

John and Jane: an example of a medium length marriage with low equity

John and Jane are in their mid-forties, and have two children aged 13 and 11.

Their house is worth £250,000 and there is a £200,000 mortgage. John earns £50,000 and Jane earns £10,000 on a part time basis.

What are their options?

  • They could sell the property and use the £50,000 equity (after expenses) to put down as a deposit for each of them. However, Jane would not be able to borrow as much in her sole name, and it would be unlikely that she could afford the sort of house she wants for herself and the children. John would therefore have to guarantee the mortgage, and the lender would be unlikely to raise the overall borrowing for both houses to a higher level than it is currently.

    If they sold, therefore, Jane would probably need more of the equity – say £40,000 – to add to the mortgage, which John would have to guarantee. If she borrowed £100,000, her housing fund would be £140,000. Would that be enough?

    John would have £10,000 to put down as a deposit, and it may be that he could also borrow £100,000 – though he would need specialist advice as well to see how far his income could stretch. If he only had £110,000 as a housing fund, would he be able to have enough space for the children?

  • If Jane had more of the equity than John, then it may be that, on the youngest child’s 18th birthday, she could sell her home and give more money to John. They could balance up their housing capital at that point. But would this be fair to Jane – would she be able to buy a property at that point?
  • What if Jane were to stay in the property? John would be unlikely to borrow more from a lender, and so would have to go into rented accommodation.

    As a way of balancing this, and so that John does not lose his capital forever, it could be agreed that Jane would sell the property when the youngest child is 18 (or her earlier remarriage) and share the sale proceeds at that point.

    The problem often arises, when there is a sale and a later share of the proceeds, that somebody in Jane’s position cannot then afford a mortgage. The housing requirements therefore need to be seen within the overall picture – of maintenance in the long term, pensions and other savings. For example, if John has a pension and Jane does not, perhaps it would be fair for her to keep some of the housing capital to put towards her own retirement needs.