Buy out or be bought out?

tripleblack · 26 November 2008 at 11:35AM

Hi folks,

Ok guys you will have to bare with me as i am not very wise to this sort of thing, i do plan on seeing an IFA very soon but would just like some opinions possibly beforehand.

Sadly me and my g/f recently separated and i now have the dilemma of whether to stay in the house and buy her out or to let her buy me out. She would prefer for me to buy her out and her live elsewhere as she has stronger emotional ties to the place whereas i would be more than happy to stay here.

Selling up is not really an option as g/f would like to buy new a new house sooner rather than later, needs a deposit as has no other capital and is not prepared to wait for a buyer in this market. Even though she doesn't want to live in the house she realises however it would make more financial sense to buy me out if i decide i do not want to buy her out. Hope that makes sense?

Mortgage is £99k house was valued at £175 just 4 months ago, prob £170 now.

I have some inheritance i can afford to buy her out with and possibly pay off a bit of the mortgage to make things that bit more comfortable. As i said i'm useless with finances (but getting better due to this site) but i'm thinking if i buy her out, the house could well be worth £140k in couple of years.

I'm guessing if i planned on staying in the house forever then it wouldn't really be an issue as i could just ride it out right? But might it be wise to let her buy me out and rent somewhere until the market bottoms out then buy a bargain property before things start picking up again?

Can't see myself in rented accommodation but if it saves me £ks then it's something i need to consider.

I'm sure you guys may need some more facts and figures so please ask away.

Oh and i'm also not feeling too safe in my job which could make a big difference to the decision...life is taking a nasty turn lately

Regards,
TB

mlz1413 · 26 November 2008 at 12:17PM

From what you say it sounds fairer to put the place up for sale and find a buyer so you both come out equally. But if your ex- g/f is not prepared to wait for a sale she needs to buy you out.

Re your lump sum do you really want to spend it on that house to stay there, could this sum be used up if you lose your job on making mortgage payments?

To be honest you have to make some decisions, would renting be cheaper than staying where you are? If it would be cheaper to keep the house than rent then maybe you could take in a lodger to help with bills if you lose your job?

Just some thoughts, would be good to know what you would prefer as a perfect sernario.

Kez100 · 26 November 2008 at 12:25PM

You are able to buy her out but can she buy you out - will she be able to raise the borrowings and fund them?

You may not have the flexibility of choice.

If you don't then it's just you buying her out or selling and that's a personal choice and comes down to the numbers and what you think is going to happen in his volatile market.

silvercar · 26 November 2008 at 12:28PM

I take it she calls the shots!

She would prefer for me to buy her out and her live elsewhere

Selling up is not really an option as g/f would like to buy new a new house sooner rather than later, needs a deposit as has no other capital and is not prepared to wait for a buyer in this market.

If I was being cynical, I would say that she wants you to buy her quickly before prices fall and she would get less from you.

How about you being prepared to buy her out, but at 10% less than market value to reflect the likely drop in the market and then knock off half the costs that would be incurred if you sold (estate agent fees and legal fees and any redemption charges on your mortgage).

To get a true market value, you need to look at prices achieved recently then knock a bit off for the fall in the market since then. If an estate agent tells you to market at £170k, you are probably looking at achieving £140-150k.

tripleblack · 26 November 2008 at 1:29PM

silvercar wrote: »

I take it she calls the shots!

If I was being cynical, I would say that she wants you to buy her quickly before prices fall and she would get less from you.

How about you being prepared to buy her out, but at 10% less than market value to reflect the likely drop in the market and then knock off half the costs that would be incurred if you sold (estate agent fees and legal fees and any redemption charges on your mortgage).

To get a true market value, you need to look at prices achieved recently then knock a bit off for the fall in the market since then. If an estate agent tells you to market at £170k, you are probably looking at achieving £140-150k.

Some good point and silvercar you pretty much have it nailed on and yes she pretty much calls the shots :embarasse

Unfortunately where it get tricky is she earns twice my salary (has done for a few years) and she moved out 6 months ago but continued to support me and pay bills and mortgage payments until i was in the position i am now where i can afford to buy her out (very amicable split and still very good friends)

But now she is gunning for the valuation of £180k from the point when she moved out or she will come after me for the extra she has contributied whilst not living there (haven't worked that out yet :undecided).

There's a bit more to it but don't want to get too personal

It's tricky because i can see her point why should she have to take the price fall when she's been supporting me for the last 6 months but at the same time is it right that i buy her out at £180k when realistically it's more likely to be worth £170k.

Silvercar i appreciate what you say about true market value but don't estate agents go off recently achieved prices nearby and base it off that anyway?

I really don't want to fall out with her and want to remain friends but at the minute i can't see that happening. How does the law work on her having contributed more over the last so many years due to her higher earnings? If things got messy would she be entitled to a greater percentage of equity?

I guess this might be one for a lawyer to answer

mlz1413 · 26 November 2008 at 2:18PM

I'd tell you g/f to get a grip of reality and I'm a woman.

You lived together and shared costs, she chose to move out and chose to give you 6 months to sort yourself out, as (I assume) she didn't say you can have 6 months but I want £180,000 after that I think she is being selfish and unrealistic.

Stick up for yourself and say the house needs to be sold and money split as per how you bought it and have paid in for the majority of the time, hopefully this is 50/50.

If she disagrees get her to write out how she is making her calculation and then work out if that is fair, if you don't feel it is, write out how you make your calculation and then ask to have an amicable meeting somewhere mutual and discuss how to move forward.

Do you have any mutual friends who could take a look at the situation without drawing sides? very difficult I know.

silvercar · 26 November 2008 at 2:20PM

Silvercar i appreciate what you say about true market value but don't estate agents go off recently achieved prices nearby and base it off that anyway?

NO!

Estate agents say what you want to hear in order for you to sign upto them. Then they tell buyers to make an offer. Then they tell you to accept the offer in the current climate.

How does the law work on her having contributed more over the last so many years due to her higher earnings? If things got messy would she be entitled to a greater percentage of equity?

Assuming there are no children involved. The property would either be split 50:50 or according to any documented agreement made when you bought. If either of you paid a larger deposit, it is normal to repay mortgage and costs. return deposit excess to whoever paid it and split the remainder.

If you had both moved out then you would both be paying the mortgage while not living there. The mortgage is a joint liability, just because someone moves out does not negate their responsibilities.

If you have agreed for someone to stay and someone to go out, I have heard of a formula where you find the rental value of the property then the party not living there pays the other the contribution of half the value that the mortgage exceeds the rental. So if a rental was £500 per month, but the mortgage payments were £800, the non-resident party pays the other £150 per month. Not sure how fair it is when one party would never put themselves in the situation of renting a property that size based on their own income.

silvercar · 26 November 2008 at 2:22PM

I would say the bottom line is that if you cannot agree on a fair valuation then you should sell the property. If she doesn't want to wait that is tough, in this market she will have to wait or accept a lower price.

tripleblack · 26 November 2008 at 2:43PM

silvercar wrote: »

I would say the bottom line is that if you cannot agree on a fair valuation then you should sell the property. If she doesn't want to wait that is tough, in this market she will have to wait or accept a lower price.

Thanks silvercar i feel a bit better/clearer about it now. There are no children involved no so can we be sure everything is 50/50 and she is not entitled to more due to her higher earnings. I guess that is my concern if things got messy.

Also out of interest, appreciating what you have said about valuations what is the 'normal procedure' when getting a realistic valution for a buy out. I was told it was just to obtain as many valuations as i can and take an average?

Many thanks again for your time :beer:

pinkshoes · 26 November 2008 at 2:44PM

If the mortgage is £99k and the house is "worth" £170k, then she'd be wanting around £35k, which is half the equity?

If you buy her out, then that leaves £134k mortgage. How much inheritance money do you have? Is it enough so that you could actually afford to take the mortgage on your own?

i.e. if you have £34k from the inheritance, you'd still need a £100k mortgage, and given that banks are only lending 3x salary, you'd need a yearly salary of £33k to be able to buy her out!!!

If she's hankering for £180k, then tell her she can buy you out at that valuation!! I think she's taking you for a ride!

mlz1413 · 26 November 2008 at 2:55PM

tripleblack wrote: »

Also out of interest, appreciating what you have said about valuations what is the 'normal procedure' when getting a realistic valution for a buy out. I was told it was just to obtain as many valuations as i can and take an average?

EA's can give you a valuation for re-mortgage purposes, but it normally falls to the surveryor for the mortgage company to value the property as he will be working for the mortgager and not you the price can be a lot lower than any EA valuation.

If you need to re-mortgage to buy her out then that will be the figure to use. I think surverys are about £150 and you might be able to get one done indepenantly.

Buy out or be bought out?

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