Mortgage Query, 3 parties involved

getmore4less

saajan_12 wrote: »

I would make sure it's very clear how much you are contributing to:
* utilities, CT (50% sounds fair)
* mortgage interest
* mortgage capital repayment.

Get the house valued for when you move in, and then if the house sells for x% profit (or loss if x is negative) after selling costs etc, then you get back

(100+x%) * YOUR MORTGAGE CAPITAL REPAYMENTS

Note the brother would also be liable for CGT for the period he is not resident in the property - this is his concern not yours but make sure he knows to factor this in before he expects to deduct it as a selling cost that affects everyone.

That is the WRONG way to do it.

eg. if there was an interest only mortgage and paid ALL of it and the house doubled they would get nothing.

you do it based on the amount of equity they effectively own in the property by servicing debt.

eg. if they service debt that covers 20% of the value then they get 20% of any new value(up or down) and then pay from that any debt they have left.

getmore4less

Jameswild89 wrote: »

Thats brill thank you,


I am not sure on the model they currently use, we havent got that far down the line yet. I will take this information and look further into it.


where abouts could i find examples or a lil more detailed information?

you need to understand the model they are using and how they propose to add you because if that model is broken you might want to reconsider being part of the investment.

if you search the forums here for people asking about buying houses together you will find some.


Also critical to the model is how you deal with overpayments on the debts and how you fund maintenance and improvements.

even simple things like what color the walls should be could become and issue with 3people on the committee.

AnotherJoe

This sounds nasty and more complex as time goes by. So brother wants to keep it as an investment. So what happens if in (say) 5 years time, you want to buy and brother doesn't want to sell ? Is there an exit scenario in the brothers plan currently?

How does brother plan to keep it as an investment if you are getting all the capital gains from the point you start paying the mortgage equivalent to brother? Lets say it cost £100k (£50k each) and is now worth £200k. So each has £100k invested in it minus the outstanding mortgage.

And in five years time lets say its worth £300k. How is that £100k rise split? Between you and partner £50k each? Between all three of you? And how apportioned? eg maybe your partner gets £50k and you and brother split the other £50k? But hes been paying nothing for 5 years? But if he gets nothing its not an investment.


What happens with maintenance? Lets say, you need a new boiler at £2,000. Who pays, in what proportion?

This could get very ugly and messy.

Jimbob88

Yes i can see it has its potential to get quite complicated.

I think in principle if my partner and her brother want to sell they would have to agree to it themselves.


I think it is going to be put into place that any funds i put into the house with regards to mortgage payments i will receive back. So if i contribute £10k, i will get my £10k back once the decision to sell has been made. I am not bothered about making any profit as i am only joining the scenario late.


It has been agreed any maintence costs would be divided 3 ways.


Yes i quite agree it could be, this is the reason i want something in writing myself.

Thanks for everyones help and advice.

getmore4less

Jameswild89 wrote: »

Yes i can see it has its potential to get quite complicated.

I think in principle if my partner and her brother want to sell they would have to agree to it themselves.


I think it is going to be put into place that any funds i put into the house with regards to mortgage payments i will receive back. So if i contribute £10k, i will get my £10k back once the decision to sell has been made. I am not bothered about making any profit as i am only joining the scenario late.


It has been agreed any maintence costs would be divided 3 ways.


Yes i quite agree it could be, this is the reason i want something in writing myself.

Thanks for everyones help and advice.

What if you want out earlier
Does that include interest paid or just capital
if you are servicing part of the debt you may prefer equity stake rather than the get your money back(interest free loan to them).


You are splitting maintenance 3 ways that's not fair if you don't have a stake in a 1/3 of the property,
Your input to maintenance/improvements should reflect your share.

AnotherJoe

OK, well as long as you are happy with that, (and to be fair if you arent in a position to get a mortgage on your own or with your partner, at least you are effectively living rent free), get a solicitor to draw up an agreement on that basis between you and the brother (I presume thats who you'll be paying?).

The other thing to consider is, at what point you can reclaim your "rent/mortgage". You said "when the house is sold" but supposing you decide to become a monk in Patagonia next year, and want your money back for the plane fare, do they have to give it to you whenever you ask? Or is it only when the house is sold? That could be a very long time.

AnotherJoe

getmore4less wrote: »

What if you want out earlier
Does that include interest paid or just capital
if you are servicing part of the debt you may prefer equity stake rather than the get your money back(interest free loan to them).


You are splitting maintenance 3 ways that's not fair if you don't have a stake in a 1/3 of the property,
Your input to maintenance/improvements should reflect your share.

Depends on your POV.
-OP doesn't have a stake in the property so he doesn't have money tied up that could be used for something else, whereas brother does.
-Brother is paying 1/3 maintenance, lets say for boiler, but gets no benefit of heat,
-Brother has to pay rent or another mortgage somewhere, OP doesn't
-OP doesn't have 1/3 property because they would (even if if there was an agreement to that effect) need to build up to 1/3 share. Initially OP would start with 0% share.

getmore4less

AnotherJoe wrote: »

This sounds nasty and more complex as time goes by. So brother wants to keep it as an investment. So what happens if in (say) 5 years time, you want to buy and brother doesn't want to sell ? Is there an exit scenario in the brothers plan currently?

How does brother plan to keep it as an investment if you are getting all the capital gains from the point you start paying the mortgage equivalent to brother? Lets say it cost £100k (£50k each) and is now worth £200k. So each has £100k invested in it minus the outstanding mortgage.

SO at that point the each own 50% £100k less 50% of the debt(say still £100k.

if OP takes over the debt of the brother so no longer pays

OP owns 25%(£50k), OH owns 50%(100k), brother owns 25%(£50k)



And in five years time lets say its worth £300k. How is that £100k rise split? Between you and partner £50k each? Between all three of you? And how apportioned? eg maybe your partner gets £50k and you and brother split the other £50k? But hes been paying nothing for 5 years? But if he gets nothing its not an investment.

the £300k is split the same % as above and the OP and OH have the debt to pay out of their shares


What happens with maintenance? Lets say, you need a new boiler at £2,000. Who pays, in what proportion?

This could get very ugly and messy.

Doing the equity/debt is the easy part once you understand the basic of how the numbers work, even if they want to do overpayments it is trivial.

BUT I suspect the OH and her brother may be coming from a different place to how it should be done

The hard part is agreeing exit strategy and the can't pay won't pay scenario.


There is a potential added complication if the brother wants "rent" for his share although this can be built so he owns a bit of the debt that get repaid from the contributors in as long as there is an agreement to what that rent should be.

getmore4less

AnotherJoe wrote: »

Depends on your POV.
-OP doesn't have a stake in the property so he doesn't have money tied up that could be used for something else, whereas brother does.

if the start paying debt they have a stake equal to that debt for the period they pay the debt.
-Brother is paying 1/3 maintenance, lets say for boiler, but gets no benefit of heat,

-Brother has to pay rent or another mortgage somewhere, OP doesn't

-OP doesn't have 1/3 property because they would (even if if there was an agreement to that effect) need to build up to 1/3 share. Initially OP would start with 0% share.

see above that's not how servicing debt works

A boiler is a capital part of ownership, the heat is the running costs which he won't be paying

The easiest way to look at this is a typical landlord tenant situation.

Anything that would normally fall on a landlord is part of the ownership.
fixing the boiler

Anything that't tenants paid by those living there.
paying for the gas

building insurance ownership.
contents insurance occupants.