Part buy of inherited house - opinions please

Krafty

Hi,

A friend has just inherited a house and my daughter has the possibility of purchasing 50% of it.

This will release equity for the new owner and allow my daughter a foot on the housing ladder.

We are looking at such things as how long such an arrangement between the two could be agreed and what options there may be for buying the whole in the future.... but would be interested in any feedback from people who may have been down this route.

We are particularly interested in what mortgage options are available for such a 50% purchase in these trouble times.

We think we understand all the variations and will of course be guided by a solicitor... but good practical experience from those that are/have been there would be appreciated.

Thanks in anticipation. Krafty.

hethmar

Hmm, not sure that you would get a good reaction from the lenders at the moment. Why does your friend want to sell just half of the property?

Krafty

Basically he wants to release some equity... as the market is quite stagnant at the moment... but retain a 50% interest (for possibly 5 years) to potentially take advantage of any future upturn in the property market.

Basically with a sale of 50% of the current value of the inherited property this person can pay off the mortgage on their own home and still (possibly) make money on the inherited house in the future.

The advantage for my daughter is she can get 50% ownership now and look forward/plan to own 100% in 5 years time.

With the appropriate arrangement (via solicitors) it could be a win/win for both parties.

We (my daughter and I) are just interested in the opinions/experiences of anyone who has been down this route!

Thanks for your interest btw!

lincroft1710

I can see problems from a lender's point of view, would they want to lend on half a house? Suggest you talk to mortgage broker about feasibility.

Krafty

lincroft1710 wrote: »

I can see problems from a lender's point of view, would they want to lend on half a house? Suggest you talk to mortgage broker about feasibility.

Thanks, we have already/plan to. But until recently (Credit Crunch) mortgage providers were providing mortgages to 4 or 5 individuals to buy a single property.

I this case we are looking at one person buying 50% of a property that another person wholly owns outright.

Providing the buyer has a deposit that the lender deems sufficient and the lender has 1st call on 50% of the property I don't see an issue.

My concern is more with what the current thinking of lenders is in the environment we find ourselves in.

PasturesNew

Issues that might be encountered:
- what if the housing market goes down, down, down, down, down for 5 years (I expect it to)
- what if the other person decides to sell the 50% to somebody else?
- what if your daughter wants to sell her half in that time?
- what if she loses her job? How will the mortgage be paid?
- what if the other party raises a loan on his half of the house and doesn't keep up the payments and they want to repossess the house?
- what if your daughter gets up the duff and wants to keep it?
- what if your daughter wants to move a partner into the house?
- what if the owner of the other half wants to move in as they've lost their job?
- what if the other owner wants to move their partner/friend/whatever into the other half?
- what if ... etc etc
- who will pay for maintenance?
- what if the house is worth £100k today and your daughter puts on a conservatory costing £10k in 3 years' time and the house is worth £80k in 4 years' time, how do you cost the 2nd half?

These and 1000 other problems can occur in the next 5 years. All are problems that have been seen on these boards this year between people sharing a house.

If she just waits and saves for 5 years it'd be better to buy her own house on her own in 3-5 years without this complication.

As others have said, it might be difficult to find a lender.

It's always a bad move to tie yourself to somebody else with property.

Sonofa

PasturesNew wrote: »

Issues that might be encountered:
- what if the housing market goes down, down, down, down, down for 5 years (I expect it to)
- what if the other person decides to sell the 50% to somebody else?
- what if your daughter wants to sell her half in that time?
- what if she loses her job? How will the mortgage be paid?
- what if the other party raises a loan on his half of the house and doesn't keep up the payments and they want to repossess the house?
- what if your daughter gets up the duff and wants to keep it?
- what if your daughter wants to move a partner into the house?
- what if the owner of the other half wants to move in as they've lost their job?
- what if the other owner wants to move their partner/friend/whatever into the other half?
- what if ... etc etc
- who will pay for maintenance?
- what if the house is worth £100k today and your daughter puts on a conservatory costing £10k in 3 years' time and the house is worth £80k in 4 years' time, how do you cost the 2nd half?

These and 1000 other problems can occur in the next 5 years. All are problems that have been seen on these boards this year between people sharing a house.

If she just waits and saves for 5 years it'd be better to buy her own house on her own in 3-5 years without this complication.

As others have said, it might be difficult to find a lender.

It's always a bad move to tie yourself to somebody else with property.

Never done such a big quoted before which I will try to reply to in a minute.

My opinion, which I will hastily add doesn't come from experience, just another head on the job. She gets to get a foot (or maybe just a toe) on the housing ladder now and the owner sells half of the asset now. In the present market this really means she get ownership of half of the financial responsibility (read this as millstone) and the owner is able to discharge half of their responsibility and take the cash at today's market value. For the moment I would say the odds are stacked in the current owner's favour.

Honestly, if I weren't tied up in property at the moment I would stay out of it for at least 12 months and save every spare penny I could to put myself in as strong a position as I could for later.

I honestly can't be a rsed providing some kind of answer to all PasturesNew's questions. I might be wrong, but I didn't get the impression from your first post that your daughter intends to live in this house, just that she wants to invest in it, so many of his questions may be invalid. That said, a half share in the ownership of a house will always have its own problems.

If she isn't tied into anything at present I would advise to stay out of it for now and buy into something on her own later. This sounds too much like trying to help out a friend with no real pay back.

Sonofa

So I've just re-read your first posts and will add my further thoughts with my really cynical head on:

as the market is quite stagnant at the moment... Stagnant doesn't really cover it, this isn't a stagnant market, it is a falling market. 10k invested now might only be worth 6k in two year's time.
Basically with a sale of 50% of the current value of the inherited property this person can realise current market value on the inherited property, pay off the mortgage on their own home and still (possibly) make money on the inherited house in the future. Thus stopping any further loss in the value of their own home (at least on the outstanding mortgage amount) whilst venturing 'free' money on another property that they haven't had to work for.

The advantage for my daughter is she can get 50% ownership now and look forward/plan to own 100% in 5 years time. As I said before, what 50% in real money may cost her, as an example, a mortgage of 10k now, may only be worth 6k as an asset in two year's time. (you multiply the figures as appropriate)

Add to this that the other owner is getting a captive audience in terms of who is likely to buy his half in the future.

In an upward market sure, great, go for it, but now really isn't the time to step on to the housing ladder/snake is it.

zzzLazyDaisy

It is highly unlikely that you will find a lender willing to lend to one person on a 50% share - it will insist on BOTH owners of the property being on the mortgage. The reason is that if they only lend on 50% of the property and the borrower defaults they would not be able to repossess the house.

So that doesn't look so good for the current owner, because that person now becomes 'jointly and severally' liable for the new half owner's mortgage - which means that if that person defaults, the lender can pursue them for repayment of the full amount of the debt.

Even on formal shared equity purchases where the purchaser owns half and pays rent to the builder or housing association (which retains an interest in the property), there are only a few lenders willing to provide a mortgage (and that was before the credit crunch)

poppysarah

Got to get onto the ladder? Buy something 100%. If they can't afford it then the can't buy a house.

Has she got a deposit?

Equity release for the owner? They should sell the whole thing. If they can't find a buyer at the price they want it simply means the price is too high.

Krafty

Many thanks for your contributions...

OK, so I asked for opinions and so far that's exactly what I received.

Nothing has been proferred on this thread that we and our friend hadn't already thought of.

All the "eventualities" that have been listed have been thought through (in advance of this thread) and solutions potentially put in place (the solicitors will have the final action of "dotting the i's and cossing the t's").

So back to my original request.... we "would be interested in any feedback from people who may have been down this route."

Thanks in anticipation.

Krafty.