Take On Mortgage Repayment

Pixie5740

Why can't he just sell up now, paying off his £70k mortgage and pocketing the £200k equity? That would seem the far simpler option because I agree with AllyMac that your solution comes across like you're trying to take advantage of your friend.

Mathar123

Thanks for everyone's replies.

I would just like to clarify that by no means is this a case of me 'taking advantage of a good friend'.

Essentially, he is looking for a way of paying off the mortgage balance of £70,000 in one go or having someone guarantee the payments get paid every month.

My first thought when he mentioned to me about paying off this £70,000 was an equity release company and then rent out the property. In which case he is giving his equity to a company that holds 26% in the property even if it appreciates over time.

What my proposal was to pay a small lump sum as a guarantee for him of £10,000 (for example) to cover his rent in a new place for a while, have him hand over equity in the current market value (if it appreciates over time I will still only hold 26% of £270,000) but then take my money back as a rental agreement (sort of as a letting agent that takes a percentage of the rental income).

His problems are the following:
(Please explain if any of these are wrong or misinformed)
A. He can't approach a rental company because the property is in very poor condition
B. He can't release equity as the property, again is in very poor condition.
C. Currently the property, in the state it is, isn't worth £270,000. He got the price of £270,000 from the sale of his next door neighbour's flat (it will take £8,000-12,000 to get the property up to sale quality and slightly less for rental quality)


Please understand this is literally just me approaching the forum with the idea of having people let me know their opinions.

I must agree with AllyMac about him selling up and keeping the £200,000 equity. However what is the difference in this, and me keeping my £70,000 worth of equity in the property and me acting as a letting agent over time. All it means is that 1. He has a property in England that if his life abroad doesn't work out he can then return home and still have a place to live 2. He still has assets in the uk 3.He can make rental income every month from the property while he is living abroad..

If I'm totally honest, maybe I haven't been explaining things properly, but I can see how this would seem like I am taking advantage of him... It's a win for him 1. Life a broad 2. Retains a UK asset 3. He makes rental income when he moves abroad 4. He is getting a lump sum payment to help kickstart a life abroad 5. He can return home.

Of course there's a benefit in it for me, but why would I help him - which money and time - and not get something out of it for myself?

davidmcn

Mathar123 wrote: »

All it means is that 1. He has a property in England that if his life abroad doesn't work out he can then return home and still have a place to live

He can't if it's got a tenant living in it! Whereas if he sells it he'll be able to rent or buy any property within his budget at the time.

Mathar123

And then he sells up, finds that the property prices in the have increased, yet the value of his home he purchased abroad has declined... What then? As a scenario....

Mathar123

Sorry, he sells his place abroad. Finds uk prices have increased but the price of his home abroad has decreased ( either through extra fees associated with immigrating or due to decline in the property market).

Mathar123

I'm playing devils advocate here so please feel free to pull me up where I'm wrong of challenge a concept if it has grounds.

It's a debate, not a one sided argument (as is the point of a FORUM. A group DISCUSSION)

Thrugelmir

Flat = service charges. Have these been factored in?

laurahester

You say it need money investing in it before it is up to rental standard - who is going to be paying that?
Your way is going to get messy very quickly - no mortgage provider is going to allow your suggested plan. How can you ensure that you do retain any equity for your 'contributions'? What if he comes back and never wants to sell, how will you get 'your' equity then?
My suggestion to him would be one of the following, if it really is a simple case of you wanting to help him out -
1) You lend him the £10k needed to get to rental standard. He rents out the flat and uses this to pay mortgage (assuming lender will even give consent to let). Any 'profit' is then used to pay back your loan.
2) He remortgages and adds £20k to mortgage to cover rennovations and to give him the cash advance for his move. Again, rent then covers repayments.
3) He sells up and faces up to the realities of wanting a 'simpler life'
What you are proposing, under the guise of 'helping him' really is more about taking advantage of the situationto see what you can get out of it. Sorry if thats not your intention but it is coming across like that. There are many other ways he can do this without you making the situation messy.

FBaby

You haven't responded to who will deal with any unforeseen arising problems. For a start, are you saying you would invest £12K so the place can be rented? Is that part of the deal? Will you also manage the rental, deal with tenants and pay for any issues that might arise from that tenancy?

The reality is that your plan would only work if EVERYTHING went to plan. It never does though and when it doesn't, it won't be you left with all the problems, it will be him, hence I hope he will run a mile from it. It has nothing for him to gain compared to him selling the place (even if less than he would like) and having complete freedom over what to do with the cash.

Pixie5740

The difference between him selling now, taking the £200k and moving abroad compared with what you proposed in your OP is that the him selling is nice, simple and clean whereas your solution is unnecessarily complicated.

If your friend really does want to keep hold of the property just in case things don't work out abroad then he could remortgage to release some equity, get the property up to a reasonable standard and let it out using a proper, professional letting agents (yes there are some good letting agents out there) to manage the let whilst he's abroad. Again, a far simpler solution to the proposal in the OP.

You paying off the mortgage whilst keeping the lion's share of the rental income isn't going to sit with HMRC because it will look like a tax fiddle. I suppose you could rent the property from him and then sublet it but I don't think that will really achieve what it is you are trying to achieve. So I'd go with the other two options I've suggested in this post and keep your out your friend's financial affairs because the convoluted solution in your OP is a sure fire way to lose a friend.