Selling half a house!!!!!

united_road_68

Forumists please assist me.

I am about to buy a new house with a family member. Both of us would find it hard to get on the property ladder single handed so decided to hop on together. The property we are looking to purchase is valued at £125,000 but does require a good amount of work.

Problem:
My family member is looking at this as a short term option approx 2 years before he moves in with his partner. T:mad: aking all costings into account can i still make this a viable option?
Purchase price = £125,000
Modernisation spend = £6-10,000
Resale price in 2 yeras £145,000

in 2 years time what options would i have open to me?
i would potentially like to stay at the property but i can not see a lender providing me the neccessary funds to buy him out. Could a friend potentially buy just his half of property? Worse case scenario is we have improved the house to a standard that would increase its value by £20,000 sell it on and split the profit.

Am i getting involved in something that will back fire on me or can this be a good short term measure?

Any advice will be much appreciated.

Thanks in advance

lisyloo

Yes you could sell half to a friend.

Bear in mind that there will be legal costs and possibly valuation costs.
The main problem though will be finding a friend who wants to move in at the same time as the family member moved out.

As for selling.
Well bear in mind that falls are possible as well as gains over the next 2 years.
How will you manage if the property has FALLEN by £20K and not risen.

Bear in mind that the transactional costs for property is quite high (stamp duty, survey, legal costs etc.) so you need to do a comparison with renting over this time period.

At a time of very high house prices and rising interest rates and you KNOW your family member is only in it short term, it sounds like there are lots of risks to me.

My advice would be to stay put. Rent or even better share and save as much as you can until you can afford to buy or find someone who will share for a longer period.

lynzpower

peronally I woulnt go anywhere near this sort of deal

Who would want to buy the share? If you dont have any "mates" it wont be possible.

Wyndham

You can't change names on a mortgage - so if you did sell half, you'd also have to remortgage. I think it would be a nightmare personally, and while I bow to lisyloo's greater knowledge, my original view was that it would be impossible to do it anyway.

DavidHM

It's theoretically possible if you hold as tenants in common rather than joint tenants (or just sever the tenancy when the time comes).

It's legally messy and practically very difficult though - how are you going to find a buyer who will be willing to pay a true 50% share when you're on shared ownership?

If you were happy to move on when the other person moves on, and that were far enough down the line for you to have covered your moving costs (legal fees, estate agent's fees on the extra sale, increased mortgage interest vs. rent) and so on by equity in the property, then it would be worth cosnidering.

As it stands it looks as though you are setting yourself up for disagreements with no easy escape route.

Property prices might continue to rise but, depending on the rental yield in your area, your rental costs would look like this:

Rent - £350/month × 24 = £8,400 on an equivalent to the refurbished property

Purchase costs would be:

Mortgage - £777.43/month × 24 = £18,665.52
Insurance - life and buildings & contents - £40/month × 24 = £960
Legal fees - £800
Stamp duty - Hopefully zero
Estate agent's fees on sale - £1,000
Survey - £250
Refurbishment - £8,000
Total - £29,675.52 / 2 = £14,837.76

If the property doesn't rise in value by 10% over and above what you've put in, you're out of pocket against renting. Added to that you have to allow something for the hassle and labour of refurbishing and the financial risk going forward if you can't agree on how to dispose when your relative wants to move on.

lisyloo

Wyndham is right that you would have to remortgage (which means you would be excluded from a lot of deals with penalties unless your family member can commit to 2 years).

I did forget about that.

Legally you can change the names on a property. It happens all the time when people divorce.
There would of course be legal costs with that but I don't see why that is difficult or messy, it just getting the names changed on the deeds which I don't think is that difficult (although solicitors time is not cheap of course).

My main concern is the state of the market.
Prices are very high, interest rates could well rise in February to contain inflation.
A crash is a possibility.
A slowdown is definitely a possibility, so even if prices don't fall there is still a chance of any gains not covering all the costs.

Note that you and the family member may not be able to amicably agree a valutaion (especially if their share has fallen as that may be hard for them to accept). Therefore you may have to pay for a professional valuation to settle the matter.

Also you need to clarify who is responsible for the costs (mortgage) during any period whilst the house is on the market.
If the family member is responsible then that's OK, but if you are then that's another risk for you.

Don't want to sound overly negative, but it would only be sensible to consider what should happen if either or you:

die, get sick, are in an accident, are unemployed, get divorced, fall out, split up or are involved in an unexpected pregnancy (that's all the bad things I can think of).

Wyndham

lisyloo wrote:

Wyndham is right that you would have to remortgage.

(Wyndham smiles smugly - she loves being right!) :T

One more thing I thought of. I know that you and this family member probably get along really well now, but that may change. If you are going to do an agreement like this it's worth drawing up a 'contract' between you. You don't need it to be formulated in legal language, or go through a solicitor, but you both need to agree to it and sign it. It should cover things like whether it is a 50-50 split for the property, actions if one of you wants to sell, actions if one of you can't pay etc. It sounds a bit formal I know, but it will save time later if you've agreed this up front.

People can honestly believe something and it not be what was said two years ago. And people can also be more malicious than you might currently think they could be....