3 way mortgage-buy other 2 out?

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ce2016

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Bought a house in late 2006 with 2 friends.We had our own houses also.Plan was to do it up,live in it for a bit then sell it on.Unfortunately,the collapse changed all that!In 2010,my girlfriend moved in.This suited the other 2 as they moved in with their girlfriends. We paid most of the mortgage,the lads were paying about €200 each per month towards it.Now they pay €120 each and my wife and I pay the balance on the mortgage. We now have 2 kids and are hoping to take over the full mortgage. My 2 friends are agreeable to this however they want to be compensated. The current value is approx €280000,balance on mortgage is about €290000 and its a tracker.So I'm looking for advice-
A-Has anyone here been in similar circumstances?If so,how did you resolve it?
B-Is it possible to keep the tracker,remove the 2 lads from the deeds and put her on the deeds?
C-What,if any,would be reasonable compensation for the lads?Thanks
 
The compensation for the lads would be to get out of this without loosing any money. You have a house worth 280k with a mortgage of 290k. If you were to put it on the market and sold it for the expected 280k, then you would loose a combined 10k plus legal fees plus estate agent fees. They'll be very lucky to get away with this with a clean slate, not to mention that you have been paying most of the mortgage.

As for the tracker question - I'm afraid I cant answer this one for you.
 
Thanks. I think we'll get the house valued as maybe it could sell for €290000 which would clear the mortgage. We paid €375000 for it 10 years ago plus stamp duty. We also put about €4000 each into renovating it. So they want some compensation for this and the fact that they paid a small part of mortgage for past 6 years also. It's a tricky one as we're all friends and want to be as fair as possible on everyone.
 
Difficult one to strike a balance here. How to compute the benefit each partner has obtained.

Clearly the other two are about to break even ie get out of negative equity but will also be giving up a very valuable investment.

Were the three of you in the house between 2006 and 2010?

If you were to have rented out the property between 2010 and 2016 how much would it have made.

How much was the mortgage?

If the rent would have been €1,500 per month and your share of the mortgage was less then you have directly benefited by this amount.

If the rent would have been €750 per month and your share was more than that then you have over contributed.

Which bank is the mortgage with?

A. This is a difficult one as you live in the house so have different views to you co owners. If it was a straight sale everyone would get the same amount i.e. -3,333 but here you stand to potentially more.
B. Which bank, potentially you could keep the tracker but this may depend on the bank.
C. What was the rent, what is the rent. A yield of 6% on €280k is €17k per annum on a tracker is as good as it gets, perhaps you will have to "encourage" the other two to sell their share.

So I think you need to look at this for the view point of having rented it to an independent third party for 6 years and see where you would be with the mortgage and then make a call on what "compensation" would be reasonable.
 
Joe_90 said:
So I think you need to look at this for the view point of having rented it to an independent third party for 6 years and see where you would be with the mortgage and then make a call on what "compensation" would be reasonable.
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This is absolutely the first step. I could not follow your description of who lived where. At one stage, it appears that there were 3 couples living in the house, but one paying a lot more than the others. At other stages, there were three of you living in 4 houses. I will assume that the mortgage payments since you bought it reflect the use and no adjustment needs to be made for this.

From an investor's point of view, it is pretty much irrelevant what they paid for it. It is irrelevant what they spent on it since. It's irrelevant what income they got from it. (Leaving aside some small tax considerations.)

Today, they have a property worth €290k and a mortgage worth €290k.

If this mortgage were at normal market rates, then they could sell their share of the house to you and no adjustment would be needed.

If I owned a house worth €290k which was generating €20k rent on a tracker costing me €3k a year, I would not want to sell it. That is €17k profit a year which is a very nice investment. If I owned a third of such an investment, I would probably want around €20k to give it up. In other words, I would sell my share in the house for about €120k.

If you ended up with a house worth €290k and a tracker mortgage of €290k and you had run down your savings by €40k, I think you would be doing well.

That is very much an off the top of my head figure. I would do a longer calculation later depending on the following.

The bank is under no obligation to allow your wife take over the tracker, however, they may allow you take over the mortgage if the income of yourself and your wife is enough to meet the repayments. They may well ask that some capital be paid off the mortgage to reduce their NE exposure.

If the bank does not allow this, then there is no point in you taking over the mortgage. You would have to compensate them for giving up their valuable investment, while at the same time you would be destroying the value in the investment by losing the tracker.

So the first step is to approach the lender to ask if they would allow it. If they don't allow it, then you don't proceed any further. Everyone stays as they are.

If they allow it, then, you would have to do a complex calculation. There is no point in doing that now, until you hear from the bank.

Brendan
 
Thanks Brendan,Joe and John Jay. Yes,its a certainly complex situation.

We bought in late 2006,didnt move in until May 2007 due to renovations.3 of us lived in it.Then from Feb 2010 my girlfriend(now wife) moved in and the other 2 owners moved out.The 3 of us as owners have agreed that compensation due,if any,will be calculated from Feb 2010 when living arrangements changed.

The tracker is with Ulster Bank,I'm not sure of the rate.I'll ring tomorrow but think it may be 1.05% above ECB rate,but again I'm not sure.
From a rental perspective,thats hard to work out,maybe you guys can help. The 3 bed bungalow is located in the North East just outside a large commuter town. It was built in the mid 1960's,hence why we spent a bit of money doing it up. Its in an upmarket area,close to schools,shops etc. The rental market has changed from 2010 to now.I'm guessing rental would have been around €800 per month in 2010 rising up to approx €1200 per month now(going on current local rental rates).
Also the mortgage has changed over the last 6 years. Originally we were paying about €1400 in 2010,now its €1044. From 2010 to 2014 my wife and I have been paying €800 and from 2015 to now,we are paying €850.

I hope those figures help with your calculations!
 
So its very unlikely that your friends would have made any profit from rent in the past 6 years.

You could always refund them what they paid towards the mortgage since 2010, probably around €400p/m on average.
400 x 12 x 6 = 28,800, divide by 2 is 14,400 each.

This would be a very good deal for your 2 friends and would benefit them more than you, but you would be buying them out for under 30k and they should be happy to get 14k out of the whole transaction.
 
They've probably paid about €300 to €350 towards the mortgage each month but its something we could examine.

Then I'm thinking,with house prices around here up by 13% since last year, might they factor that in to their compensation claim?House is near parity now so how could I factor in expected gain for them?if there will be any at all! Surely,they wont keep going up 13% every year or else we'll have another crash!!

The flipside of that is by us "buying them out", we're also saving them €150 each per month in payments. Plus it frees them from a mortgage and they dont have the hassle of worrying about another house that they dont live in.

By the way,is there a site where I can check yearly rents for our locality from 2010 to the present? I googled but cant find anything.
 
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You are missing Brendan's point, the past is irrelevant. Unless your friends are now claiming that you had cheap rent at their expense over the years.

If the bank will allow the transfer keeping the tracker rate, then you need to buy out their current equity.

How do you value that, well €290,000 at 4% - 1.05% (use the actual current mortgage rates less the actual tracker rate) gives €8,555 a year, of which one third is yours. That means you should pay them a capital value equivalent to €5,700 annually, which is a shockingly big number. And that is before pointing out that you are anxious to buy, they have no incentive to sell. If you gave them €20k each that would be an excellent deal for you.

If the bank does not agree to you keeping the tracker, there is no profit to be had from buying out the others, but surely the situation needs to be resolved at some point.
 
Well, that's the thing. I don't know were I'd come up with €40k. I'm losing €200 a month on my own house(though it's near parity) , childcare is €1000 a month.
So what happens then? We just keep the status quo and sell when they're ready? Then I could be too old to get another mortgage.
It's a complete mess really. But we're all eager to try resolve it.
 
cremeegg said:
Unless your friends are now claiming that you had cheap rent at their expense over the years.
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This is the very first issue which you must resolve.

First, sort it out from now.

Let's say the market rent is €1,500 per month.
And the mortgage payment is €1,200 per month,

Your account should look like this:

upload_2016-11-13_17-12-41.png


You pay the mortgage in full and you pay them €100 per month each.

Second, sort this out from February 2010.

You have to sort this issue out before you can move onto the buyout issue for two reasons:

a) You may not be able to buy them out now without losing the tracker, so you should make sure that you address this ongoing problem and make sure everyone is happy with it.
b) By resolving this, you simplify the buyout problem.

So, I would suggest that you sit down with your two partners and fix this issue immediately.
Then move on to talking to UB.

Then come back here and let us know how you get on, and you will get further ideas.

Brendan
 
Thanks. Current repayments are €1044, rental is about €1200.
It's harder to figure this out from Feb 2010. I can contact Ulster Bank tomorrow and get a full breakdown of how our rate has changed since Feb 2010 but how do I find out what rental income may have been from 2010 onwards?
Finding this a bit confusing so excuse my ignorance. But that's why I'm asking for all your expertise.
 
You have a house rented elsewhere how has the rent on that changed?

I think your numbers are reasonable paid €387,000 in 2006. Price halved to 2010 approx €195k rent approx €800 pm is reasonable.

Now €1,200 pm x 12 x 20 times gives you €288k.

So get the statements and do out a spreadsheet rent, repayments, contributions from each partner and see where you are.
 
I'm in my early 40's now. My first house is just about hitting parity now. In 7 or 8 years, I might make only make €50k on that as I'll have to pay CGT. I presume banks will lend to a max 68 years of age. Anyway, I'll focus on this other issue first even though I'm pretty confused.

I'll ring UB tomorrow and trace the change in mortgage repayments from Feb 2010 to now. Then I presume that will help me do a few calculations.
 
ce2016 said:
It's harder to figure this out from Feb 2010. I can contact Ulster Bank tomorrow and get a full breakdown of how our rate has changed since Feb 2010 but how do I find out what rental income may have been from 2010 onwards?
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You said that your friends very cooperative enough. So agree the methodology with them. Agree what the market rent should be today.
Then backdate it using the DAFT index for your locality.

Brendan
 
Thanks Brendan. Yes,the lads are very cooperative,as are we.Everyone would just like to come to some arrangement sooner rather than later.
Just by having a quick look at rents, using DAFT index, over past 6 years,as John Jay says it looks like they wouldn't have made any profit from rent during this period. But now rents on our locality have skyrocketed over past 12 months. Theres actually no houses for rent on DAFT for our area at the moment. I'm going to arrange to meet an Ulster Bank mortgage advisor this week to explore tracker issue. I read an article earlier written by Charlie Weston dated 8/8/15(cant post link) about UB allowing people to move trackers but add 2% for 10 years....Could we avail of this?Or would the fact that we're not actually moving disqualify us?
 
ce2016 said:
it looks like they wouldn't have made any profit from rent during this period. But now rents on our locality have skyrocketed over past 12 months.
Click to expand...

Well then might be a good time to sort things out according to the table I did above. Assume that the past rents were fair and fix it from now on.

The only one who can answer your question is Ulster Bank.

Brendan
 
Ok, thanks everybody. I'll report back when I get further news. Appreciate all your advice & help so far.
 
Guys,my figures were way wrong. Remaining balance is approx €274000. Has an estate agent call today to value the house(supposedly he's one of the only ones that banks use to value property locally....however true that is?). My wife was here and he said while the house has potential he'd be putting it on for €240k and hoping for a few bidders to push that up. He also said rental would be €750-€800 max which in my opinion is off the mark. Anyway,so it looks like we're still in negative equity.
Where do we go from here??????
 
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