buying a friend out of a mortgage

vicky0304

my friend and i bought a flat about 4 years ago, she put £25k down as a deposit, and then we have a £150k mortgage together. it has now come to a time when we want to move on and i would like to buy her out. i have the £25K to give her (plus interest) and so my question is what else would i need to offer her? the flat isnt worth anything more than we bought it for at the moment, but that could change and we would need to have it valued. She says that i would need to pay her back all the money that she has paid off on the mortgage over the 4 years, im not sure this is right?

sorry i may seem a little naive about it all, and will obviously see my solicitor, but i just want to know a little more first....

bundly

Hi Vicky. I did exactly what you are planning to do, and we paid out for a solicitor's advice, so I can pass that on to you to save you money!

What you do: get the property valued. If you bought for £175k and it's worth £175k, you need give her only the £25k back that she put in.

She most DEFINITELY is NOT entitled to all she has repaid on the mortgage - that's outrageous! If she wasn't living there with you, she'd have paid that (or more) out in rent!

What is more, by selling her share to you, rather than the pair of you selling it to someone else, she is saving on the solicitor's bill for selling it!

Look at it this way -- you and she are selling a property. Then you are buying it off you and she. Let that be your guide.

It's a shame for her that the property hasn't increased in value since you bought it, but that's life I'm afraid and she cannot expect YOU to compensate her for that, can she?

jennifernil

Even if the property has not increased in value, there may have been some capital paid off the mortgage, so would she not be entitled to a proportion of that?

SouthCoast

Have you checked with the mortgage lender that the transfer of the flat into your own name will meet their current lending criteria?

pinkshoes

You need to pay her the £25k back, then half of any increase in equity.

i.e. you bought it for £175k (£150k mortgage and £25k deposit), and it's now worth £175k, but the mortgage is say £140k. So you'd have to give (£150k - £140k)/2 = £5k.

How much cash do you have? You'll be taking on a property worth £175k, so will need £30k to pay her, then another £17.5k for your 10% deposit (required for mortgage), then you'll need to earn enough to pay the rest of the mortgage (£157.5k). They currently loan around 3x your salary, so you'll need to earn over £50k.

Basically, for this to work you'll need a minimum of a £50k salary and almost £50k cash/savings!

Are you sure it's not easier to sell up??

ET1976

Have you been paying the mortgage exactly half each for the whole time? What sort of agreement did you draw up at the start regarding what would happen if one (or both) parties wanted to leave/sell?

As has already been said, your flatmate is entitled to her share of the equity in the property (current value minus outstanding mortgage), not just the original deposit. This is not the same as what she has paid into the mortgage though.

As you say, you do need to see a solicitor to sort it out.

DVardysShadow

vicky0304 wrote: »

She says that i would need to pay her back all the money that she has paid off on the mortgage over the 4 years, im not sure this is right?.

When she says this, does she mean ALL her contributions to the mortgage? or her half of the amount you have reduced the mortgage by?

bundly wrote: »

... She most DEFINITELY is NOT entitled to all she has repaid on the mortgage - that's outrageous! If she wasn't living there with you, she'd have paid that (or more) out in rent!

Exactly. If she wants all her mortgage payments back, she should then pay rent ...

jennifernil wrote: »

Even if the property has not increased in value, there may have been some capital paid off the mortgage, so would she not be entitled to a proportion of that?

Yes, this is correct

pinkshoes wrote: »

You need to pay her the £25k back, then half of any increase in equity.

i.e. you bought it for £175k (£150k mortgage and £25k deposit), and it's now worth £175k, but the mortgage is say £140k. So you'd have to give (£150k - £140k)/2 = £5k.

That is how to do it.

bundly wrote: »

... What is more, by selling her share to you, rather than the pair of you selling it to someone else, she is saving on the solicitor's bill for selling it!

Yes, in part - there may still be some legal fees, but probably less than a full sale. And on an Estate Agent. You should offset the amount you pay by half the EA and solicitor fees. If she is not happy with that, then you should rework the figures using an open market sale for the same price and show her she is still better off by half these fees.

chappers

many years ago I bought my first house with a friend, we had an agreement drawn up saying that after 3 years if either wanted to sell up that we would, if the other party wanted to buy the other half of the property we would arrive at a value based on the average of 3 agents we then calculated equity both to include the rise in value and the mortgage reduction as described by pinkshoes.

poppysarah

How much is the place worth now?
Can you afford the mortgage on your own? Will the bank think that you can?
What does the paperwork you signed say about one of you leaving the mortgage?

What if it's now only worth 150k - her deposit would have disappeared ...