Q I could do with some advice with regard to buying someone out of a property. In 2015, my friend and I bought a property for £210,000 with a cash deposit of 10%, which we each paid half of.
She now wants out of the property but I don’t think I can afford to buy her out on my own. However, another friend is willing to help by becoming part of the joint mortgage with me.
Can you advise me of the process? What’s the best way to work out who gets what? Also, in future would it be best to be tenants in common rather than having a joint mortgage? HB
A To be able to buy your friend out, you need to be able to take on the whole mortgage on your own and find enough cash to pay her for her share of the equity in the property. Because you contributed equally to the cash deposit and assuming that you also split the mortgage payments down the middle, it is quite straightforward to work out what you need to pay your friend.
You take the current value of the property, subtract the amount outstanding on the mortgage and divide the remaining amount by two. So, for example, if the property is now worth £250,000 and there is, say, £180,000 left to pay on the mortgage, you would need to find £35,000 in cash for the friend who wants out.
If, as you suspect, you can’t afford to take on the entire mortgage on your own, having your other friend becoming the joint mortgage holder would seem an attractive solution. But you can do that only with your lender’s agreement. If you don’t have the cash available to pay your current joint owner’s share of the equity, you will also need your lender’s agreement to increase the mortgage to raise the necessary cash.
Having a joint mortgage doesn’t make any difference to the way you own the property. A joint mortgage makes you both liable for the mortgage debt but it doesn’t automatically make you joint tenants rather than tenants in common. If you do decide to go into joint ownership with your other friend, it would make sense to be tenants in common as it means you would each own a distinct share in the property.
If this friend is simply joining you on the mortgage rather than putting any cash into taking on the property, you need to make sure that the fact that you have put cash in is reflected in your percentage shares as tenants in common. Your solicitor should be able to advise on how the deed of trust giving details of your shares – among other things – should be drawn up.
