Selling a shared house thats in negatvie equity

Belfast79

Could someone please help me out with the maths of selling a shared house in negative equity

A friend and I bought at end terraced house at £215,000. I put down a £50,000 deposit. We then took out a £165,000 and paid it equally.

We agreed that this meant my share of the house was 61% and my friends was 39%

This was at the end of 2007 when the house market was at its highest.

The mortgage is now down to £147,000

The house is now valued at around £110,000.

My friend now wants to sell his share. I am willing to take the mortgage on myself and the bank has given me permission to do this.

What money should change hands to complete this sale between us. I dont understand the calculations at all. Any help would be greatly appreciated, especially as my friend thinks i should be giving him money to buy him out??

G_M

Well it really depends exacly what the agreement originally was.

post edited 'cos I made a Boo-Boo.

£30K it is.

suze200

Your friend can't "sell" his share as it is worth less than he paid for it. He would need to pay you £14430 (his share of the debt) for the pleasure of you releasing him from his oblgation to keep paying the mortgage.

andy.m_2

This comes down to share of losses as opposed to share of remaining value.

He needs to give you 39% of £37,000 or £14,430.

He wont see it like that though.

InMyDreams

I would do it like this:

Your friend owns 39% of a £110 house. You want to buy him out, so you need to give him £42900 and you will then own 100% of the house. He also needs to clear his half of the mortgage.

He would use the £42900 towards paying off his half of the mortgage which is £73500K, so he needs to find another £30600 if you are to release him of his debt.

The problem is, even with this £30600, you would still be in negative equity, so I don't know if the bank would let you do it anyway.

Edit: OK, I re read the OP and you say that the bank has given you permission. In which case I think your friend needs to give you £30600 to wipe his slate clear. That's assuming you agree on the £110K valuation and you both contributed equally to the mortgage repayments. Any other improvements/maintenance of the building should have been split 61% / 39%.

G_M

InMyDreams wrote: »

I would do it like this:

Your friend owns 39% of a £110 house. You want to buy him out, so you need to give him £42900 and you will then own 100% of the house. He also needs to clear his half of the mortgage.

He would use the £42900 towards paying off his half of the mortgage which is £73500K, so he needs to find another £30600 if you are to release him of his debt.

hmm. I read your calculation inmydremas and thought: "yup that seems right."

Then I read my post again, and thought: "Yup that seems right."

:T

ValHaller

At disposal, each takes his share of the proceeds (39:61) and each pays off his share of the mortgage (50:50) from his share of the proceeds . In that order

This as far as your friend is concerned is a disposal - he should do no better and no worse in the current situation than under a full disposal.

So he takes £42,900 as his share (39%) of the proceeds and he pays £73,500 as his share (50%) of the mortgage. Friend should pay you £30,600.

(crossposted with IMD)

ValHaller

G_M wrote: »

hmm. I read your calculation inmydremas and thought: "yup that seems right."

Then I read my post again, and thought: "Yup that seems right."

:T

What you have done is shared the mortgage shortfall rather than the overall loss of equity. So you have left OP with 100% of the loss of equity and offset it by 39% of the mortgage shortfall. If nothing else the friend should bear 50% of the mortgage shortfall as he is responsible for 50% of the mortgage.

There has been a loss of equity here of
(210 -165) - (110 - 147) = 45 + 37 = 82

OP's friend should be putting his hands deeper in his pockets than £14,300

Belfast79

ValHaller wrote: »

At disposal, each takes his share of the proceeds (39:61) and each pays off his share of the mortgage (50:50) from his share of the proceeds . In that order

This as far as your friend is concerned is a disposal - he should do no better and no worse in the current situation than under a full disposal.

So he takes £42,900 as his share (39%) of the proceeds and he pays £73,500 as his share (50%) of the mortgage. Friend should pay you £30,600.

(crossposted with IMD)

You are the second poster to come up with this version of how to sell the house. I dont quite understand it though. The house is £37,000 in negative equity. I dont see how my friend would owe me £30,600 because of that? Even if we just sold the house on the open market. We would owe the bank in total £37000 between the two of us.

InMyDreams

Belfast79 wrote: »

The house is £37,000 in negative equity. I dont see how my friend would owe me £30,600 because of that? Even if we just sold the house on the open market. We would owe the bank in total £37000 between the two of us.

He owes £73500K of the mortgage. His share of the asset only comes to £42,900 so he's still £30,600 short. If you let him just walk away and take over responsibility for the whole mortgage, you are taking over *his* debt of £30,600.

In other words, if you take over the whole mortgage, you are taking over his £73500 debt. In return, you now also own his 39% of the house but that is only worth £42,900. He needs to make up the rest.

Cornucopia

The two scenarios depend on a division of the mortgage, which would either be 50/50 or 61/39, depending on what you agreed (I think 50/50) from the original description.

On that basis, I agree with £30600.

If you simply apportion the £37000 loss, then you are implicitly apportioning the mortgage amount in the same way, which may not be appropriate.