Reasonable amount to remove friend from mortgage

[Bigsmoke79]

Looking advice,

Me and my best friend bought a house together in 2007 was 100% mortgage and interest only so neither put down a deposit, we borrowed £104k and I reckon it's now in negative equity by about £5-10k, so it's worth about £95k.

We both lived in the house for 6 years
He lived in it for about 1 year alone after
We rented it out for 2 years after that
Then I moved back in with my other half for the last 3 years

I've been paying the small interest only mortgage amount, and all ground rent, rates etc for the last 3 years and my friend hasn't paid anything for the last 5.

If I was too look at taking on the mortgage and doing a Remortgage and changing it into repayment the reality is I would be taking on the debt (negative equity), would it be fair for me to ask my friend to take their name off the mortgage for a small amount or nothing?

He's invested as much as me in the property over the years but hasn't lived in it for about 5 years, I wouldn't like him to walk away with nothing but at the same time there's no equity to buy him out and nothing has been paid off the mortgage as it's interest only.

So whats a reasonable figure to ask him to take his name off the mortgage? Or what way would you anybody in here suggest going about it.

I mentioned it to my finanical advisor and he doesn't think I should pay anything really as I'm the one taking on the debt, will be me having to pay Solicitors to take him off the deeds etc

 

[Brendan Burgess]

This is an Irish website, but the principles are the same.

If you both decided to sell the property tomorrow, you would be left with a shortfall of £10k between you. So the starting point is that he should pay you £5k to take his name off the mortgage.

Is there any need to adjust this up or down?

For the last three years you have been paying for it but getting all the benefit.
If you had rented this property from a third party landlord, how much would you have paid in rent, ground rent rates etc?
How much did you pay in interest, ground rent, rates etc?


And what about the two years when you rented it out? How much rent did you get? Did it cover the cost of the mortgage? What did you do with the surplus or how did you fund the shortfall?

What interest rate are you paying? If it's a market rate, then no adjustment needs to be made. But if you got a really cheap tracker, you will be benefiting from that in the future.

Brendan

 

[Bigsmoke79]

If I was paying rent to a private landlords probably about 400-450 a month

The mortgage interest monthly payment is £115.00
Ground Rent is £56 a year (£14 per quarter)
Rates £680.00 a year

It's on a standard variable rate

When it was rented we just had our friend cover the costs above per month so there was no surplus or savings.

Thanks and apologies didn't realize was a Irish website but thanks for your input.

 

[Brendan Burgess]

If I was paying rent to a private landlords probably about 400-450 a month

The mortgage interest monthly payment is £115.00
Ground Rent is £56 a year (£14 per quarter)
Rates £680.00 a year

OK, for the last three years, you have been doing very well?

You should have been paying around £5,000 a year.

But you have been paying around £2,200 a year ( £1,500 interest, £680 rates and £56 Ground rent)

So you "owe" him around £6,600 and he owes you £5,000.

So a fair balancing payment from you would be £1,600.

Brendan

 

[Bigsmoke79]

OK, for the last three years, you have been doing very well?

You should have been paying around £5,000 a year.

But you have been paying around £2,200 a year ( £1,500 interest, £680 rates and £56 Ground rent)

So you "owe" him around £6,600 and he owes you £5,000.

So a fair balancing payment from you would be £1,600.

Brendan

Cheers for that and thankyou, is that how this sort of thing is worked out? To be honest I dont have a clue but think that's fair and reasonable all in and I could at least put that too him and see if he thinks that's reasonable.

I'm not disbuting me doing well out of it, living here helped me and my now wife save for a wedding and I wouldn't want to see him out of pocket on the deal like I said originally.

Do you think if we are using that calculation then I need to subtract the year he benefited from it while I wasn't living there? surely that's fair?

 

[Brendan Burgess]

He lived in it for about 1 year alone after

Yes, I had missed that.

There is no agreed formula. Usually it's two former partners who have contributed different amounts to the deposit and they are at each other's throats.

You seem to get on well with him, so I think that the above is a reasonable formula.

He might well have a different way of looking at it. But put the above to him and see what he says.

If he has "allowed" you to live there for 3 years with no adjustment for the cheap cost, he sounds like a reasonable guy.

Brendan

 

[Bigsmoke79]

Yes, I had missed that.

There is no agreed formula. Usually it's two former partners who have contributed different amounts to the deposit and they are at each other's throats.

You seem to get on well with him, so I think that the above is a reasonable formula.

He might well have a different way of looking at it. But put the above to him and see what he says.

If he has "allowed" you to live there for 3 years with no adjustment for the cheap cost, he sounds like a reasonable guy.

Brendan

Yeah we are good mates we both were each others best man at each others wedding and I would hate for money situation to come between us, people keep saying he should be grateful your gonna let him out of the negative equity etc but I don't think that's fair yes I'm taking on the debt and he needs to know that but either way he's entitled to something.

Think next steps are speak to a financial advisor and see if he can perform some magic and see if it's possible for me and me wife to remortgage it.

To keep everything fair and honest I'd probably need to a get a free valuation or two done on the property so my friend doesn't think I'm trying to do him out of money etc (just so I get the actual negative equity figure)

Then present it to my mate along with the calculation above ask him if any of the amounts or unreasonable? like landlord rent? Suppose I can ask when the property is being valued what the going rate it for private rental and get them to give me that figure as well.

My mate isn't busting a gut to get off the mortgage, but he's his own family and mortgage now and it will only hinder him in remortgaging further down the line.

Last time we spoke he said sure we can just rent it out if I wanted to move, or me and my wife wanted to buy another property but there's 17 years and 3 months left on the interest only mortgage and after speaking to the lender if it was changed to a repayment mortgage today we'd need to pay £577 a month to clear it in that time. There's no way we'd get that in rent and be able to cover rates, etc so to me this is the best way forward.

 

[moneymakeover]

Another way to look at it is you have an investment producing 3k profit per year

Guaranteed for next 17 years.

Presuming this will increase over the years as rent goes up.

And property price likely to increase so there should be capital profit too

So 50k profit before you sell.

IdI say offer your friend 25k for the privilege of becoming sole owner.

 

[Bigsmoke79]

Another way to look at it is you have an investment producing 3k profit per year

Guaranteed for next 17 years.

Presuming this will increase over the years as rent goes up.

And property price likely to increase so there should be capital profit too

So 50k profit before you sell.

IdI say offer your friend 25k for the privilege of becoming sole owner.

Not a bad way to look at it, but the property in and were it is hasn't increased in last 5 years so would be a big Gamble thinking it would increase.

It's guaranteed £3k profit but what happens on 17 years when the bank is looking it settled? £3k x 17 years is £51000 that's not even gonna cover half of the outstanding balance.

And more importantly were would I get £25k from, certainly won't be letting me borrow that extra on a negative equity mortgage.