Advice please - sibling wants to buy family home

canaldumidi

2016.... took out a £350,000 mortgage on the London property.....the London home, which was valued in October 2021 at £575,000.

Step one is to ask dad to get a mortgage statement. What is the current outstading mortgage? Probably now something less than £350,000

At the same time, you/he needs to clarify the terms of the mortgage - if on a fixed rate or discounted rate, is there an Early Redemption fee ie a penalty for paying it off early? If so, when does that end (eg a 5 year fixed rate taken out 3 years ago won't expire for another 2 years).

Once you know all that, you can calculate the equity in the property by subtracting the outstanding mortgage, and any Early Redemption fee, from the market value.

On which topic - where did the £575,000 valuation come from? An estate agent? How many estate agents? Or an official (paid for) RICS Valuation?

Having established the equity, you are entitled to half, according to dad's plan (say between £137,000 and 112500). You should insist on this as you need it for your own house purchase. Any lower figure, or arrangement for you to receive some of it later (eg via dad's will) is unfair as it will not help you now.

As for your sister, assuming equity in the property of, say £275000, she will need to find £137000 ( to buy you out). She can do that from a combination of savings and/or mortgage. But remember, as the property is valued at £575,000 she already has a significant  'deposit' for mortgage purposes. Is her income sufficient to justify a mortgage of (up to) £137,000? Has she consulted an independant mortgage broker?

edit: my maths as always is suspect.....

Twixty3

You do not HAVE to concede anything.

Just  keep repeating that you too want to buy a house now not years later.  

It’s amazing what people expect others to give up from pure selfishness.  Be a wee bit more selfish yourself otherwise you won’t be buying anything soon. 

No one can guarantee today what you *might* get in the future  with potential inheritance tax,  care home fees, if your father remarries and dies before his wife or a house price crash and so on.  (I’m assuming he is single from how your post is worded) 

TBagpuss

AS others have said, I think the thing to do wouldbe to look specifcally at the figures - andthen ask her how she proposs to riase the money -

If the mortgage was an interest only one, then she would need to be able to borrow £487,000 (£350,000 to clear the mortgage and £137,000 to pay you your share) and would have, in effect, a deposit of £137,000.

If your dad has been paying fdown the mortgage and the outstanding balance is now only £150,000, that would mean that the equity was £435,000, so your sister would needto be able to borrow £362,000, and to use £150K to clear the mortgage and £212,500 to pay you, and she would have an effective deposit of £212,500.

Of course, your dad could chose to let her buy the house for less, and instead of clearing the mortgage, he could get a mortgage on the house in Norfolk, (in effect, he choses to led your sister money) 

Then the arrangement might be that your sister borrows £212,5000 whichgoes to you for your share of he equity. Your dad tranfers the mortgage of £150,000 to the Norfolk house, and your sister gives jhim a legal charge over the London house to secure £150,000 plus interest, (or 26% ofthe property value) payable to him or his estate. If she pays hm back over time then in due course, you inherit equsally, if not, then it becomes a debt she owes to his estate and th e executors eiother recover if from her as part of getting in his assets, or it is offset against her share of any inheritance. 

Obviously from your pespective you would be arguing that f he choses that option that his loan to her needs to be formally done and secured with a legal charge, and to be interest bearing, otherwise she is being treated unfairly. 

pumas

Is the London house dad's main residence? Capital Gains tax?
You're expenses buying your own property will probably be more than sister's.

GDB2222

Prices in London are quite buoyant at the moment, so I imagine the current valuation is higher than last October.

Dad will want his mortgage paid off, and you will want half the equity paid to you. 

Suppose the current mortgage is still £350k, and the house value is still £575k. Your sister needs to raise her own mortgage to cover
£350k - dad's existing mortgage that he wants paid off
£112.5k - the OP's half share of the equity that he wants paid to him in cash

She therefore needs to raise a mortgage of £462.5k against a house valued at £575k. Can she get a mortgage of that amount? That's the only question that really needs to be discussed at the meeting. She'll have her half share of the current equity as her deposit, so it's just a question of whether she can raise a new mortgage of £462.5k.

Has she got an 'agreement in principle' from the lender? Has she spoken to a broker, at least?

As a rough idea, if sister and husband have no other borrowings, a good credit record, and combined earnings of £95k a year, they can probably raise that amount of mortgage. 

Those figures will need some adjustment to allow for any change to the house value and the exact amount to pay off dad's mortgage, but just keep asking that question about the mortgage. 

If dad's current mortgage is lower, sister won't need to raise as much to pay that off, but the OP's fair share of the equity will be more.

Good luck.

TripleH

Don't accept a 'you get the Norfolk house / larger share of that house' as circumstances could change between now and hopefully the time your father passes. If care is required that could eat up a lot of that home. Don't accept any informal charge against sister's house as you may have a long wait for your share and there will be a reason why they can't pay you now.

A good defense is 2 salaries vs 1 so they can stretch to meet the fees. You shouldn't have to finance your sister's life and pitvyours on hold.

thegreenone

Your brother in law should NOT be in the meeting.  Your sister will have 'back up', you and your Dad won't.

I like @TripleH 's suggestion of 2 salaries etc.  Don't be bullied.

pleasedelete

Much more complicated than you make out
Capital Gains tax on whichever house  he doesnt live in- has he factored that in? 
Deprivation of assets- how old is he?
What other assets does he have? Is inheritance tax going to be an issue- how old is he- what is his health like?

He needs to take financial advice. 

elsien

She can’t afford it but she’s set her heart on it and you want everyone to come out of this happy?
Not going to be happening - there’s lots of things I want but can’t afford, including a nicer house in a bigger area. So I don’t have them.
Your sister needs to get realistic and you need to practice your broken record technique. “I’m sorry but there’s one of me and there’s two of you. I don’t think it’s fair to split any differently than 50% of the current equity.”  Repeat ad nauseam every time an alternative is proposed. 

Along with, (if needed) “no I don’t want a bigger share of the Norfolk house instead, because none of us have a crystal ball to know if there will be any inheritance at all.”

Whilst in your head reminding yourself that you are not the one being selfish. 

MEM62

Bowties said:

However, my sister expressed an interest in buying the London home, which was valued in October 2021 at £575,000. Problem is, she cannot afford it but has set her heart on it.

We have a family meeting tomorrow night to discuss the way forward. Myself, my dad, my sister, and her husband.

I’m not sure what the outcome will be, but my sister does not have enough for the deposit or the mortgage meaning I will have to concede somewhere for her to purchase the London place. 

Here endeth the discussion.