A home ownership/mortgage conundrum..

C_Mababejive

Consider the following scenario.

Person "A" is the registered proprietor of a home on which they are the sole mortgagee and indeed it is their only home and they live in it.

They decide its time to scout around for a new mortgage deal.

They know another person,perhaps a close friend or family member,who might like to invest in person As property. They would like to perhaps front up a lump sum which would represent a percentage of the current value of the property.

This would help person A to reduce their mortage overhead and also their monthly payments

In return Person B would like their percentage stake in the property registered at land reg but they dont have a current desire to live at the property though they may choose to at a later date.

Can this work?

Ta

holly_hobby

If the property is mortgaged, the borrower is the mortgagor (the lender is the mortgagee).

If the property is mortgaged, and your friend wants to "invest" a lump sum into the property, in exchange for legal and beneficial ownership, whether under equal ownership as Joint Tenants (where on death the survivor becomes sole owner), or unequal shares as permitted under a Tenants In Common arrangement (where your share on death will not automatically tsf to the survivor, but may be bequeated to anyone you wish), they will need to be party to the mortgage too - this is non-negotiable from the lenders point of view.

This is essentially a Transfer Of Equity, whereby your mortgage lender will assess your friends status as being suitable, and if agreed will add them to the mge & deeds. Cost you're looking at circa £400 - £600'ish (varies on region) for your solicitors fee & possibly a mge admin fee too.

Your friend now being a joint legal owner and mortgagor, also has full legal responsibility for the mortgage along with you, and it is also exposed to THEIR creditors (albeit only to the share of their legal ownership). Additionally, they will now be financially associted/linked to you, so any iffy credit history they have will reflect on you.

Upon disposal (sale), any gain they realise (as this is not their primary residence) will be exposed to CGT, AND if the value of the monetary contribution & mortgage split (ie consideration) exceeds 125k, they will also have SDLT to pay.

Also, what happens if they want their investment back, and you can't pay it ? What happens re their investment if they die before they have had it returned ?

Numerous issues and problems with this, which on reflection may make it unattractive for him/you.

If you do still want to proceed, speak to your mge lender first regarding what ERCs you will have for the lump sum reduction, also set in place assessment for adding your pal.

I would in conjunction with the TOE, also ask your solicitor to prepare a trust deed to lay out what happens when with regards to the property, their investment (will it be equal to a % stake or their investment plus a defined cut of any gain), if the relationshp breaks down what the process will be, if you die how will the issue be discharged, etc, etc, etc.....

I wouldn't do it ... but you have the bones if you feel its suitable for you.

Hope this helps

Holly x

PS - your avatar made me smile, I have a Bullmastiff whom takes over the settee too .... well she takes over everywhere really !