Buying a friend out a mortgage

Pm00113

I've been living with a friend for 2 years. We both pay 50/50 on the mortgage and bills etc and both paid half for solicitor fees and stamp duty etc. The only difference is that I put in a deposit of 50k and he put 0 in, this is protected by a clause in the contract. The property was purchased for 200k.

Now I'm at the age in my life where I've been with my girlfriend for some time and I want to move in with her properly and have our own place. I therefore wish to end the arrangement I have with my friend.

As I see it this generates 3 options.
I buy him out.
He buys me out
We sell

The mortgage started on 150k and is now 140k so we paid in 5k equity each.

Now If we sell its pretty simple. We split the profit on the increased house valuation which is now 210k 50/50 meaning we get 10k each minus the fees we have to pay for solicitors and estate etc and come to an informal agreement on furniture. Regardless of this, the amount my friend will come out with less than 10k in the end.

Now I don't see the need to go through the drama of all that and would rather buy him out. Due to my large deposit he cannot afford to buy me out so I would have to buy him out. This would seem very straight forward. I'd give my friend 10k cash for him to release his claim on the property. He is better off with that as no solicitor or estate agent fees will be subtracted.

Howwver my friend doesn't want to move so doesn't want to sell or be bought out. But has agreed to be bought out if I provide a financial incentive.

I sort of get this. I've therefore offered him 12k as a gesture of good will.

This has been rejected and a demand of 18k has been made. My friend believes I should pay back the entire original solicitor and stamp duty fees. The total cost of living room furniture. Plus I should repay what he paid into the mortgage gross. Aka not taking off the interest.

I fear this is a sticky situation, and will probably ruin the friendship. That aside. Legally where do I stand.

Two questions...
What legally is he entitled to from a buy out?
If I want to sell or buy out and he refuses legally where do we stand?

Advice appreciated

Tom99

You would normally have a deed of trust to protect you £50k. What is the contract you refer to and what does it say?

G_M

What does it say in the Deed of Trust from when you bought jointly?


Failing that, it's all down to negotiation. We can't help you negotiate........

mije1983

Legally you can't force him to sell without an (expensive to get) court order. Unless something is written in your contract regarding the sale of the property.

So if you want to buy him out, then the £18k may be your best, cheapest, and quickest option.

Pm00113 wrote: »

I fear this is a sticky situation, and will probably ruin the friendship.

Yes, and another unfortunate example of why money and family/friends shouldn't mix.

saajan_12

In my opinion splitting the increase in value down the middle is generous on your part as you invested a larger share of equity. I would calculate the fair split as follows. Share splits at outset based on 200k house:

Your share = 50k + half mortgage (75k) = 125k = 62.5% of house
Friend's share = half mortgage = 75k = 37.5% of house

Currently, house is worth 210k with above splits and you each pay off half of 140k mortgage
Your share = 62.5% * 210k - 50% * 140k = 131.25k - 70k = £61.25k
Friend's share = 37.5% * 210k - 50% * 140k = 78.75k - 70k = £8.75k

So that would be my starting point for an equitable split. However since you're the one wanting to change the arrangements, he is:
1) incurring moving expenses (removals, new tenancy fees..)
2) losing out on cheaper accommodation (mortgage interest < rent often)
3) losing out on further house value growth potential

So its understandable he's unhappy with the change. This is why friends shouldn't buy together - people's life decisions happen at different times!

I would make clear that £8.75k is his starting point, and then compensate him for some expenses because you're the one wanting the change.

However if he completely doesn't play ball, it'll be more expensive for you to force the sale through the courts, so your only options are to keep things as is or pay whatever he wants.

Pixie5740

saajan_12 wrote: »

In my opinion splitting the increase in value down the middle is generous on your part as you invested a larger share of equity. I would calculate the fair split as follows. Share splits at outset based on 200k house:

Your share = 50k + half mortgage (75k) = 125k = 62.5% of house
Friend's share = half mortgage = 75k = 37.5% of house

Currently, house is worth 210k with above splits and you each pay off half of 140k mortgage
Your share = 62.5% * 210k - 50% * 140k = 131.25k - 70k = £61.25k
Friend's share = 37.5% * 210k - 50% * 140k = 78.75k - 70k = £8.75k

So that would be my starting point for an equitable split. However since you're the one wanting to change the arrangements, he is:
1) incurring moving expenses (removals, new tenancy fees..)
2) losing out on cheaper accommodation (mortgage interest < rent often)
3) losing out on further house value growth potential

So its understandable he's unhappy with the change. This is why friends shouldn't buy together - people's life decisions happen at different times!

I would make clear that £8.75k is his starting point, and then compensate him for some expenses because you're the one wanting the change.

However if he completely doesn't play ball, it'll be more expensive for you to force the sale through the courts, so your only options are to keep things as is or pay whatever he wants.

It doesn't matter what you think is fair way to split the equity (I don't mean that to sound rude but however I write it, it always comes out sounding rude). How the equity should be split should already be determined in the Deed of Trust. If there's no Deed of Trust then legally the friend would be entitled to half the equity.

Pixie5740

There's a duplicate thread on the Mortgages & Endowments board.

https://forums.moneysavingexpert.com/discussion/5849749/buying-a-friend-out-a-mortgage

saajan_12

Pixie5740 wrote: »

It doesn't matter what you think is fair way to split the equity (I don't mean that to sound rude but however I write it, it always comes out sounding rude). How the equity should be split should already be determined in the Deed of Trust. If there's no Deed of Trust then legally the friend would be entitled to half the equity.

Ofcourse it doesn't matter what I think (no offence taken) which is why I tried to litter my post with "in my opinion" and "I would" rather than "this is the law".

However its the negotiation that matters, as without them coming to a mutual decision, it comes down to either no change or forced sale through courts, which will cost more than the difference they're arguing about.

So, I only posted in case it helps in the negotiation if OP can show the friend that they're already getting more than whats fair. The negotation is what matters,