Buying with friend - what's a fair deal?

robpaton

I am buying a house with some help from a friend. I am putting in £140,000 to my friend's £35,000. The mortgage (£50,000) is in my name and the mortgage company stipulate that my friend's £35,000 be registered as a gift. We are happy to do this, but obviously want to make sure the investment is properly protected. If we enter into a private loan agreement, what would be regarded as fair compensation for him in the event of a sale/buy out? I am assuming splitting any profit 4:1 according to investment as this would seem fair, but want to know if there is any particular equation usual in these circumstances. Also if there is any normal period of time regarded as reasonable to raise funds in the event of a requested buy out from him.
Any advice from those who have entered similar agreements welcome.
Rob

Thrugelmir

Is it worth the hassle ? Surely better to own the property outright yourself. If the money is declared as a gift then that's what it is. Be difficult to enforce a private agreement in the courts. In addition you would be considered to have lied by your lender. Another way of saying application fraud. Not a marker to have on file.

pinkshoes

Are you paying the mortgage on your own? Or are you paying 50/50?

The 4:1 ratio is fine as a base, but then don't forget to include the mortgage bit into the calculation.

You will also need to agree what happens if you fall out or someone wants a partner to move in.

Could you get a larger mortgage and have your friend as a lodger?

mrginge

Given that the 35k is a gift, i think a fair split is
You - 100%
Friend - 0%

Certainly that is the lie, oh sorry i meant legal statement you are declaring to the mortgage company.

If this question was being asked by your friend, they would be advised to not touch this mess with a bargepole.

plunt

get a joint mortgage and a deed of trust, split the equity 50-50, or split the property proportionally. then pay the mortgage repayments based on which ever % method you decided to go with.

Gifting the money will just cause issues. well atleast for your friend! on a side note, you can never pay him back and there will be very little he could do to get it from you if he signed it off as a gift

BitterAndTwisted

Make a joint-mortgage application and have a Deed of Trust set up to reflect your unequal deposits and register the property as tenants-in-common. Mortgage-payments are same ratios as the deposit. This makes it much more straightforward if/when either wants to withdraw their equity. But there are several different ways of skinning this particular cat. Unless there is a reason why the other person cannot apply for a joint mortgage with you.

SavingPennies_2

I know this is an obvious thing to say but why don't you just buy on your own? You could borrow an 85K mortgage and with such a big deposit you will get a good interest rate. It really seems like more trouble than its worth just for an extra 35K, and as this is a friend one of you is surely going to want to move on with a partner at some point. I think buying yourself will save a lot of potential problems a few years down the line.