Taking over friends share of the mortgage

celiao82

Hi,

I'm hoping someone can help with my query.

I own a 20% share of a shared ownership property. My flatmate owns another 20% and the housing association owns the other 60%.

My flatmate now wants to leave and I would like to take over her share of the mortgage. I have spoken to the mortgage company/housing association etc and it should be fine to proceed. It will be a straightforward transfer of equity.

My query is about how I go about calculating how much money I would need to pay my flatmate for her share of the property. I will consult a solicitor on this but I need to make a rough estimate to ensure that I can afford to undertake this.

At the moment, we 4.5 years into our fixed rate mortgage. It was originally a £100,000 mortgage and there is currently £92,000 outstanding.

The property will also have increased in value (the property is in central london). When we bought the property it was valued at £250,000. I have yet to have it valued but I believe it could be worth up to £320,000.

If we were to sell the property we would incur a selling fee of 1.25% of the total propery price from the housing association, as well as the solicitor fees. so the selling fee would be in the region of £4000.

I have concluded that there are 3 ways to calculate how much to pay her and I am unsure which is right:

Option A:
Share of increased flat value :£14000
Share of Equity: £4000
total: £18000

minus

Share of approx selling costs: £2500
amount to her: £15500

Option B:
Share of increased flat value: £14000

minus

Share of approx selling costs: £2500
amount to her: £11500

Option C:
Share of equity: £4000


minus

Share of approx selling costs: £2500
amount to her:£1500


I would appreciate any feedback as to whether I am on the right track with any of these calculations.

Thanks. C

00ec25

it would be totally unacceptable not to buy her out of the equity she has built up otherwise you are pocketing her investment in the flat that she has paid for herself but more importantly she has as much right to a share of any growth in value as you do
the only answer is option a

poppy10_2

00ec25 wrote: »

it would be totally unacceptable not to buy her out of the equity she has built up otherwise you are pocketing her investment in the flat that she has paid for herself but more importantly she has as much right to a share of any growth in value as you do

Calm down, the OP never said she was trying to get out of paying her flatmate, she's just trying to work out what the figure should be. It's a complicated calculation, there's lots of factors to take into account

£8,000 paid off the mortgage, should be split equally so £4000 each
£70,000 increase in house price - 20% of this would be £14,000
I think that's where the two figures have come from.

Really your flatmate is entitled to £18,000 from you, on top of you taking over her £46k share of the mortgage. Plus, I doubt whether you will be able to charge her for her share of the selling costs if you are not actually selling the house at this time. If you come to sell it in future, then you will be liable for the whole costs if you are the sole part-owner.

celiao82

I am not trying to screw anyone over.

I do apologise that I should have also mentioned that she currently wants to sell which is why I was subtracting the costs we would both incur if that was what we were to do. I feel that it would be fair to include that in the payment that I would offer as I am in this position due to her, I would happily continue living in this situation.

Richard_Webster

Option A is the right calculation. You can never realise any cash from the property without paying the selling fees so they should come off.

I would do the sum differently (but the result comes out the same):

Selling price £128K less £5 selling costs (but you said £4K) = £123K available proceeds less £92K mortgage leaves £31K of which half is £15.5K.