How to work out who's owed/owing what

purplebiro

I bought my house with a friend in September 2006 for £129500. My friend never lived in the property but provided 25% of the deposit ad agreed to pay 25% of the mortgage payments, while I provided the remaining 75% of both. He was named on both the deeds and the mortgage (I am not sure if the percentage ownership was clarified in either of these - I can check and verify if need be but certainly I know that neither he nor I would dispute the 25/75 split).

In July 2012 my income had increased to the extent that I was able to take over full payment of the monthly mortgage payments, which he duly agreed to and I did. At that time the value of the property was £115,000 (my estimate from Zoopla now, no valuation done at the time) and the value of the mortgage was £114,250.

Since then there have been several occasions when I have investigated the possibility of having the property re-mortgaged into my name only (something my friend and I would both like) but the lack of equity in the property, stagnant (and falling) values in the area and the lack of mortgages etc etc etc etc mean there's never been a feasible deal available. I also have a history of bad credit (all resolved some time ago and excellent ever since but I still have about 18 months of my seven years' records on my credit file before it's all gone) which has ruled me out of anything other than insane rates of interest. Throughout all this my friend has been very patient.

However, yesterday I applied for a new mortgage online at a very affordable rate for me and my partner to take joint ownership of the property, with a mortgage of £107,000 (what remains of the current mortgage) and a property value of £125,000 (about what the property is currently worth - possibly slightly on the higher side of the spectrum of values) and received an agreement in principle! So it looks like we are finally on our way to getting things sorted...but I have a lot of questions:

1. What now?! Do we proceed with the mortgage application (with Chelsea) or do I need to let Santander (current lender) know first? At what point do we appoint a solicitor to get the deeds changed? Should we agree a settlement with my friend before all this? Something approaching a roadmap of steps would be very useful!

2. How do I calculate what, if anything my friend is owed? I can't even get my head around this one!!

3. My partner would be effectively being bought into this mortgage by my equity in the property and not paying a deposit etc. but I am keen that we keep an even 50/50 split on the property. He does not have any savings that could cover a deposit paid into the mortgage or direct to me but he could pay an amount split into monthly payments to cover this (especially as the amount he will be paying on the mortgage will be considerably less than he has been paying in rent for the last few years) - how do we calculate this and should it be paid to me or as an overpayment on the mortgage?

4. Given all of the above am I better seeing an IFA with my friend and partner than asking for advice on the internet?


Thanks in advance for any help you can give!

hcb42

How much deposit did you both put in?

I would say the fair way would be to split the capital based on your shares - if you still have a mortgage of 107K after 9 years(??) then it doesn't sound like you have paid a lot of capital off if any. You will of course have paid off a fraction of capital between July 2012 and now, but whether it is significant or not is hard to establish from the facts here.

If you have proceeded with Chelsea, then wait and see what they say. Don't go doing any more applications yet. I assume you picked Chelsea for a rate related reason?

3. Is up to you really. We don't split our deposit/outgoings 50/50 down the middle and never have.

4. I think the three of you need to sort out what you all think is equitable. whether you see a broker for the new mortgage is up to you (if chelsea doesnt work out) but the equity split would be down to what you agreed at the time/what is fairest to all.

purplebiro

Hi

Deposit was £6475 total - £1618.75 from my friend, £4856.25 from me.

So are you saying to work on the basis that he should be owed: 25% of the equity in the property in July 2012 plus his deposit?

So the equity in the property was £750 (based on my figures above) - 25% of that = £187.50 plus the deposit above = £1806.25.

That seems fair on paper but a little harsh on him...

purplebiro

Bump - any more thoughts on this?

hcb42

He (and you) bought at the wrong time if the motivation was investment

How much capital and interest did your friend pay off?

I think I would sit down and just ask him what he thinks is fair. He gambled on the property ladder at the wrong time, but he didn't gamble a lot and it was 9 yrs ago.

You have £18K equity at best, which could be fairly calculated as 3/4 yours and 1/4 his assuming he had kept up paying his 25% (which he hasnt for 2 years but that's another matter). So somewhere between your calc and £4.5K would be reasonable.

I think this is about friendship not figures, for these relatively low sums involved ( I appreciate you still need to find the money, but you wouldn't have got on this so called ladder without him)

purplebiro

Thanks - that's helpful - I have put the lower figure to him but with a "don't be afraid to ask for more if you can show your workings"-type caveat and will see what he says.

And no - sadly for him he didn't buy at the right time for investment. Long term, it's not really an issue for me because I live in the house and intend to carry on doing so until we outgrow it and then will use whatever (probably minimal but still reasonable) amount of equity to buy into a slightly larger property in the same area.

Interesting really, when you think about it - a tale of two property buying motivations and how they've worked out for us both!! I do remember very distinctly saying to him in the local before we put in the offer "are you sure you want to do this?" and him replying "well, if one thing's for sure, house prices aren't going to go down!" and my heartily agreeing. Hindsight, eh?!