Selling a shared house thats in negatvie equity

suze200

We would then both owe the bank the negative equity of £37,000. So why would he owe £30,600 of this? See what I mean? Im a bit confused.

Because you put in £50,000 at the start. Unless you are prepared to give your friend this.

Ciderarmy1987

suze200 wrote: »

We would then both owe the bank the negative equity of £37,000. So why would he owe £30,600 of this? See what I mean? Im a bit confused.

Because you put in £50,000 at the start. Unless you are prepared to give your friend this.

Exactly, You put in 50K at the start and it is now only going to cost him 30K, he has done pretty well, all things considered

InMyDreams

Belfast79 wrote: »

Okay, but look at it this way... If we sold the house on the open market we would get £110,000.
We would then both owe the bank the negative equity of £37,000. So why would he owe £30,600 of this? See what I mean? Im a bit confused.

No.

If you sold, you would receive £110K, in the ratio 61:39. So you would get £67100 and Friend would get £42900. From that, you would have to pay off the mortgage of £73500 each.

So you would have a shortfall of £6400 and you friend would have a shortfall of £30600.

Cornucopia

It's worth pointing out that the 39%/61% appear to be the proportion of the original investment (including half the mortgage) that went into the original £215000.

ValHaller

Belfast79 wrote: »

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.

Belfast79 wrote: »

Okay, but look at it this way... If we sold the house on the open market we would get £110,000.
We would then both owe the bank the negative equity of £37,000. So why would he owe £30,600 of this? See what I mean? Im a bit confused.

Belfast79 wrote: »

So he would have to give me £14,300, not £30,600?

If you are happy with your calculation, then do it that way, it will save arguments. But I would not lose £16,300 to avoid the argument.

Basically, your losses are the difference between buying price and current valuation - about £95,000. So your friend should be stumping up 39% of that loss. The mortgage shortfall of £37,000 is only a part of that loss.

In your position, I would be very concerned about convincing the friend to accept that he has to pay to exit the deal and I can see that he will be reluctant to pay £14,300, never mind £30,600. I think I would be starting from the position that I would not take on the whole mortgage, full stop.

Belfast79

ahh, like all people in negative equity we always thought the price of the house would go up. My friend had always said when we sold the house I would get my intial £50,000 back first.

james_toney

the question is can your friend afford to pay the amount whatever it is

ValHaller

Belfast79 wrote: »

ahh, like all people in negative equity we always thought the price of the house would go up. My friend had always said when we sold the house I would get my intial £50,000 back first.

So, dispose now at £110,000. You get £50,000 and you share £60,000 39:61. He gets £23,400 and pays £73,000 for his share of the mortgage. He owes you £49,600.

Remind him of this. It make £30,600 look quite good.

G_M

ValHaller wrote: »

So, dispose now at £110,000. You get £50,000 and you share £60,000 39:61. He gets £23,400 and pays £73,000 for his share of the mortgage. He owes you £49,600.

Remind him of this. It make £30,600 look quite good.

Or you could, at the start when you went into this doomed venture have agreed that on sale

,
* 1st you would get back your cash (£50K).
*Then whatever is left (£60K) is used to pay off the mortgage (reducing it from 146 to 86K)
* then you each pay £43K to complete the mortgage payment

So He has paid out £43K.
And You have received 50 & paid 43 = £7K in your pocket.

Actually much fairer. Why should you have risked your £50 and he risked nothing?

The real lesson here (for others!) is that when buying jointly, think through ALL the possible scenarios and agree what will happen (and put it in writing) before you get married.

oops - slip of the ... yes. A joint purchase is a bigger commitment than marriage!

InMyDreams

Belfast79 wrote: »

My friend had always said when we sold the house I would get my intial £50,000 back first.

I thought you said you agreed a 61/39 split in equity. That is different to you getting your £50K back first. You can't have it both ways.

The problem is, if you leave it until after the event to discuss your exit strategy, it's impossible not to use hindsight. Which isn't fair.

Of course, now that the price has dropped, it seems very reasonable to want your £50K back intact before sorting out the rest, given that he didn't put in any of the deposit. But you resolved that at the time by agreeing that you would own a higher percentage. Had prices risen, you would have made more.

G_M wrote: »

Actually much fairer. Why should you have risked your £50 and he risked nothing?

I would disagree that the friend risked nothing. Friend is now saddled with a huge debt (£30,600) and absolutely nothing to show for it. OP should now have 100% of the house and once he uses the £30,600 to reduce the mortgage, is only in negative equity by £6,400. So yes, OP has lost more (£50K deposit + £6,400) but that's because he owned more of the house in the first place. Had prices risen (as he was expecting) he would have made more because he chose to invest more. (OP invested his own money plus some borrowed money. Friend only invested borrowed money, so more risky but the investment was less.)

I would only add that the OP has actually been quite generous already. He actually put in over 61.5% of the purchase price, but was happy to own only 61%. Additionally, since he owned over half the house, he has in effect been slightly subsidising the friend who has presumably been using the house as much as the OP.

The only unanswered question is whether ongoing maintenance or any improvements were split 50/50 or 61/39.

If the OP and his friend wanted to split everything 50/50, they should have split the initial cost 50/50. Ie £107500 each. So OP would have only had to top up his £50K by £57500 and the friend borrowed the full £107500. In other words, OP would have paid 35% of the mortgage and Friend 65%. Then everything else could be split 50/50 including ownership and maintenance.

This would also have meant that now the house is in negative equity they would have each lost equivalent sums. This would have been much better for the OP (smaller losses now, and also having had a smaller monthly repayment over the years) but much worse for the friend.

Isn't hindsight a wonderful thing. Problem is, you have to stick to what you agreed. Had prices risen, you would have been quids in. It's impossible to say *now* what would be fair, now that you are armed with knowledge you couldn't possibly have had to start with. Before you knew what house prices were going to do, you agreed to 61/39. It could have gone either way. The only fair thing to do is to stick to the original agreement, which was reasonable and fair at the time.