Advice for buying friend out of jointly owned property

[Jada]

Hello,
Hopefully someone can advise me on any issues I need to consider when buying a friend out of our jointly owned house. I’m trying to figure out if I can afford to take the house on my own.
My friend and I bought our house 3 years ago @ 235,000 and the current value is now 340,000. We were both First Time Buyers. We have an outstanding mortgage of approx. 210,000.
Here are the financial queries I have so far:

• Do I have to pay stamp duty on my friend’s half of the house I will be purchasing?
• What is the likely penalty for coming out of a 5 year fixed mortgage @ 3.75% We have 3 years left and mortgage was taken out over 30 years. Or will our mortgage company waive this fee if I continue my mortgage with them?
• Do I lose out on my preferential FTB mortgage tax relief as I will have to take out a new mortgage?
• What kind of legal fees would I be looking at?

I have a cash lump sum I can use to pay my friend. Would €65,000 be the correct settlement figure?
340,000-210,000= 130,000/2 = 65,000 ??? (ignoring contents for the moment)

Also, I have a gross salary of 45k with no loans etc., so would I get approval for a mortgage on my own?
Is there anything obvious I have over-looked?

Any advice is appreciated.
Thanks.

 

[Guest107]

Do I have to pay stamp duty on my friend’s half of the house I will be purchasing

I believe so but possibly on the appreciation bit only see below. You will be a second time buyer at 6% I'd say.

What is the likely penalty for coming out of a 5 year fixed mortgage @ 3.75% We have 3 years left and mortgage was taken out over 30 years. Or will our mortgage company waive this fee if I continue my mortgage with them?

Who knows, there are so many variants, do try to continue because 3.75% is good and get the full mortgage assigned to you from your friend rather than cash in pay penalty and remortgage.

Do I lose out on my preferential FTB mortgage tax relief as I will have to take out a new mortgage?

its only 1k @20% , least of your worries. It may be the 'same' mortgage if the reassignation works. You get 4k for second home @20% and 5k @ 20% for FTB so thats €200 per annum.

What kind of legal fees would I be looking at?

with no searches involved as you already have part title and a flat fee type solicitor suchas dermot deane I would say c.€400-€500 if the mortgage continues in place as is only minus yours friends name but they need to come off the title at some stage. They may leave and sign the paperwork and leave you in situ for 3 years with their name on the title. Thast messy but could be in the form of an option where you pay them €65k now and 'buy' the house off them for €1 in 3 years time. Thats a binding contract and you hold the option to exercise at your whim. You avoid the legal fees now and stamp duty . It avoids mortgage grief.

I have a cash lump sum I can use to pay my friend. Would €65,000 be the correct settlement figure?
340,000-210,000= 130,000/2 = 65,000 ??? (ignoring contents for the moment)

perfect. that what I would say. also see overall costs, allow €1k and who 'wants' to leave and who 'wants' the house and split.

the questions now are

1. will the bank 'continue the mortgage so you breach no terms
2. revision of title removing your friend ..no new mortgage to register .
3. title revision in land registry
4. change from 1st time to owner occupier. There will be stamp duty but not on your half.
5. do they need to buy a gaff now or are they prepared to take the money and do the paperwork to transfer title in 3 years.
6. will house prices fall, saving you stamp duty in 3 years but nowt else of course.


The property is €340k so max stamp duty @ 6% for that band second time buyer is 170k x 0.06 or €10.2k , or else its 65k @ 0.06 because you own half the appreciation and are stamped on the other half so its €5.1k but I would say €5.1k anyway.

That may be lower in 3 years

Also, I have a gross salary of 45k with no loans etc., so would I get approval for a mortgage on my own?

mortgage still 210k , if a civil servant then absolutely and if your record is generally good and you found 65k along the way then yes.

Is there anything obvious I have over-looked?

no major item and you asked the right questions pretty clearly the stamp duty calculation means a lot though.

has the other party accepted the 65k offer and how much furniture is fixtured, eg did they pay for half the built in wardrobes ??

 

[sloggi]

please see the extract from [broken link removed] which would appear to explain the status of the purchaser in the case of a buy out situation:



What is the position where a person, who had obtained first time buyer relief on the joint purchase of a house with another first time buyer, subsequently acquires the other joint owners interest in the house? A person who obtained first time buyer relief on the purchase of an interest in a house would not be precluded from obtaining first time buyer relief on a subsequent purchase of another interest in the same house provided that person has not purchased another house or part of another house in the intervening period.


I would imagine as such you would not be eligible for stamp duty if you were not entitled to pay it in the first place?

 

[3CC]

They may leave and sign the paperwork and leave you in situ for 3 years with their name on the title. Thast messy but could be in the form of an option where you pay them €65k now and 'buy' the house off them for €1 in 3 years time. Thats a binding contract and you hold the option to exercise at your whim. You avoid the legal fees now and stamp duty . It avoids mortgage grief.

Although I generally agree with 2packs comments, you should check with your solicitor re the above. Contracts which are designed to avoid the payment of stamp duty or other taxes are considered a sham and are generally not enforceable.

D

 

[Guest107]

Although I generally agree with 2packs comments, you should check with your solicitor re the above. Contracts which are designed to avoid the payment of stamp duty or other taxes are considered a sham and are generally not enforceable.

absolutely so dmkelly . Its more to preserve the 3.75% mortgage in situ and to ensure finality......eg that the title transfer will go smoothly when the option is exercised . stamp duty will be exercised at the appropriate rate at the then full value of the house , whether today or in 3 years time

sloggi appears to have indicated that a buyout today will mean that the buyer out is still treated as a FTB in all respects, not just for retention of Interest relief so the stamp duty on the bought out portion would be 3% at €340k value. in respect of the remaining mortgage its €210k and is about 4.5 times your income which is a bit on the high side but its under 70% of the value of the house which helps .

€317k is a MOST virtous valuation figure because the stamp duty for a FTB would be 0% if you are treated as a FTB again .

talk to a lawyer. the lawyer would explain the situation at valuations of €340k ..officially...and also at €317k officially . The lawyer cannot be a party to diddling the revenue so they cannot advise you on finessing the buyout terms so that maybe 20k of the 65k was for furniture and fittings and a separate contract agreed by you and your friend thru their lawyer perhaps after which the option price could be €45 k perhaps and you exercise the option immediately for €1

 

[Anne8]

Bought out a friend a year ago, and did not have to pay stamp duty on any element of the purchase of their half of the property.

Legal fees were around €1,000, included re-mortgage, land registry & change of title deeds, etc

There should not be any break-costs from your fixed rate mortgage given that interest rates have risen since you entered into the mortgage. (although this varies across institutions)

 

[Jada]

Thanks so much everyone for your help.
I will be in to see my bank next week to find out what mortgage they will give me.

My friend is happy to accept €65k and we have already agreed on splitting the contents. She is buying a house with her fiancé so is looking to go ahead asap.

After reading 2Pack’s comments, I would love if my bank would re-assign the current mortgage to me. I really worried as to whether my bank will give me the mortgage though, will they take the increased value of my home as a consideration?