Co-owning a house with a relative

Baby_Angel · 11 May 2021 at 4:15PM

Asking this for a friend.
Friend is single, owns a house with mortgage in England. House value 400k and outstanding mortgage is 200k. One of friend's sibling, who is married wants to invest in friend's house and has offered 200k. The friend was approached by the sibling with this proposal. Friend likes the idea as they will be able to pay off mortgage. Friend understands they will own only 50% of the house going forward.
Friend likes to know what future problems might arise and what we need to consider carefully before entering such a co-ownership.
Things we are unsure at the moment is
1. Since the sibling is married, can the 50% ownership registered in sibling's name, without the married partner? What happens if the sibling was to separate and how will their divorce settlements (if they were to divorce) affect my friend's co-ownership?
2. When calculating value of the house, should the friend get estate agent valuations, just to be safe?
3. Is this whole deal a non-starter?
4. Issues with future sale of the house, friend itself getting into a relationship or getting married?

Please advise on anything else we have missed. Friend has a great relationship with sibling, trust them a lot, but does not want to be disadvantaged by agreeing to something that they haven't considered yet.

moneysavinghero · 11 May 2021 at 4:19PM

What if this investor sibling decides one day that they need their 200k for something else? Will your friend be happy to sell her house?

Whats the return for the investor? Yes she can pay the mortgage off, but surely the investor would want paying something for having their money tied up in the house? Or are they purely interested in the rise in house value when it eventually gets sold?

Baby_Angel · 11 May 2021 at 4:26PM

moneysavinghero said:

What if this investor sibling decides one day that they need their 200k for something else? Will your friend be happy to sell her house?

Whats the return for the investor? Yes she can pay the mortgage off, but surely the investor would want paying something for having their money tied up in the house? Or are they purely interested in the rise in house value when it eventually gets sold?

Thanks.
The friend is capable of buying the sibling out. Friend won't have a mortgage at that time and has a good job. So hoping this won't be a problem.
What my friend is sensing is that the sibling is investing only to keep the money aside. Not really interested in a business sense. Hence my friend is fearing their might be divorce or something in the horizon. Just a feeling only, nothing they know of.

JGB1955 · 11 May 2021 at 4:29PM

The 50% share of the house will become part of the assets of the investor if it comes to a divorce settlement/disagreement. Similarly if the investor pre-deceases the friend. The partner/beneficiaries may not be willing to wait and can apply to the courts to force a sale.

princeofpounds · 11 May 2021 at 4:33PM

Liquidation of the sibling's interest is a big deal - what happens if your friend suddenly has to raise 200k (or whatever value in future) to replace their financing? Especially if they are no longer in a position to do so?

What happens if the sibling decides to use their right of residence? Or wants to install a lodger? Or has other plans for the site, such as development?

Another big issue - what is the sibling getting for this 200k? If it's just house price inflation, that's a stupid investment. Will your friend, as occupant, be paying interest or rent (depending on if this is structured as a private mortgage or equity part-ownership) to the sibling? If not, why not - they are living in 'their half' of the house for free.

Maintenance, insurance - who pays? Improvements, who pays and who gets the value?

As to your other questions:

- Yes, sibling can own the interest in the property solo. But if they divorce, it counts as a marital assets and will be subject to any divorce agreement.
- Best bet for calculating house value is a RICS valuation. Agents tend to overvalue slightly to win business.
- Is this a non-starter? It can be done, but it doesn't seem very sensible based on what you have said so far. It would make more sense as either a private mortgage or equity part-ownership with a lot more thought around rent and how the structure could be unwound fairly and 'safely' for all involved. These types of deals are rare because they don't normally make sense when you get into the details.
- Issues? Yes, lot of them. See above, and there are more I'm sure.

moneysavinghero · 11 May 2021 at 4:35PM

Baby_Angel said:

moneysavinghero said:

What if this investor sibling decides one day that they need their 200k for something else? Will your friend be happy to sell her house?

Whats the return for the investor? Yes she can pay the mortgage off, but surely the investor would want paying something for having their money tied up in the house? Or are they purely interested in the rise in house value when it eventually gets sold?

Thanks.
The friend is capable of buying the sibling out. Friend won't have a mortgage at that time and has a good job. So hoping this won't be a problem.
What my friend is sensing is that the sibling is investing only to keep the money aside. Not really interested in a business sense. Hence my friend is fearing their might be divorce or something in the horizon. Just a feeling only, nothing they know of.

The friend might be able to buy out the sibling now. But what about in 10 years when the property has doubled in price so that 200k 50% share will now cost £400k to buy out? Will she be able to afford to buy sibling out then?

princeofpounds · 11 May 2021 at 4:35PM

Baby_Angel said:
What my friend is sensing is that the sibling is investing only to keep the money aside. Not really interested in a business sense. Hence my friend is fearing their might be divorce or something in the horizon. Just a feeling only, nothing they know of.

The friend is going to end up with a very unhappy sibling if the sibling doesn't understand that this will not help them at all.

Not many good reasons to inject ones own accommodation into a divorce dispute.

Baby_Angel · 11 May 2021 at 4:56PM

@princeofpounds: Thank you for the detailed reply. Lot of things to think about. I will pass it on to my friend

verytired11 · 11 May 2021 at 6:21PM

I would avoid, avoid, avoid. This is not a random request - the sibling will have an agenda, and if that agenda is related to divorce, there may be court involvement. What happens if the divorce court orders the sibling to sell their share to put the money into the divorce pot. In any case, mortgage rates are so low at the moment it doesn't make financial sense to borrow money from a sibling who will have the power to sell the roof over your friend's head if they want or need to get their money back (mortgage company would only do that if your friend defaulted) plus your friend would only get 50% of any rise in value. It makes much more sense to borrow the money from the mortgage company and keep control of their own housing situation and also retain the full benefit of any rise in value. Unless this is literally the only way your friend can stay in their house, it makes no sense at all.

[Deleted User] · 11 May 2021 at 9:49PM

How will things like repairs and decoration be paid for? 50/50 or will your friend be expected to pay 100% as your friend is the occupant. Like others I think the plan is bonkers with no benefit to either sibling.

gettingtheresometime · 11 May 2021 at 10:29PM

Does the sibling own a property already ? Unless the friend is in financial trouble, if I were your friend I'd wonder why the sibling had thought of this.