Buying out mortgage co-holder

[rfisher]

Probably obvious but I'm a little confused about the details;

Hypothetically, say one is living as tennant in common with both parties named on the mortgage. Mortgage is £20,000, house worth £200,000.

If one party wants to buy the other out, does (s)he pay £10,000 or £100,000?

[TallPaul]

Personally, I would think it would be more based on what you both put into the property. If you both had an equal deposit and paid half the mortgage, you'd probably need to pay half the value of the proerty to buy them out. If the other party wanted to buy your share, would you be happy with £10,000?

[Eggman]

The 'buyer-outer' pays £90,000 - half of the bit you jointly own, and then takes over the £20k that's owed.

[johnfm]

You offer what you think it is worth. They then choose to accept or reject your offer. Simple really, unless you are divorcing and hate eacother.

[jessica]

Eggman said:

The 'buyer-outer' pays £90,000 - half of the bit you jointly own, and then takes over the £20k that's owed.

yup...... that's the one. unless you have children together. Then its down to who they live with etc.

[rfisher]

So what's the legal position?

Can the buyer outer offer say £50 and the party leaving accept this or is the law that it has to be a 50:50 buy out based on what each party has put in and split the remaining mortgage?

Knew it would be complicated!

Must emphasise that this is hypothetical and just out of interest.

[johnfm]

Offer and acceptance. All this 50:50 stuff refers to their equitable interest. In practice you could gift your 50% if you chose to.

[JonRB]

Bear in mind that, unless the "buy-out" is a result of a divorce, you will be liable for Stamp Duty on the 'chargeable consideration'. I'm not entirely clued up on this as my research was divorce-based, but it looks as if it may be on half the value of the property. Don't quote me on that though.

See http://www.hmrc.gov.uk/so for further information.

Edited by JonRB on Monday 19th January 22:13

[zippy500]

Hope this wont upset you, but you will have to pay stamp duty for the 2nd half of the house.

[johnfm]

He won't pay stamp duty on the half - it is only a 100k transfer.

[JonRB]

johnfm said:

He won't pay stamp duty on the half - it is only a 100k transfer.

Good point. I'd forgotten about the new threshold.

[Eggman]

I thought Stamp Duty didn't apply to transactions less than £175k, so maybe not. (Unless someone knows different?)

[ETA: Slow typing there - watching TV with the other eye!]

Edited by Eggman on Monday 19th January 22:25

[zippy500]

Are you sure, I gave my ex 43k to buy her out and had to pay stamp duty.

[rfisher]

Presumably they can both agree to sell the house and split the money?

What about renting out half of the house?

Isn't the Law fun?

[Cactussed]

Just going thru this now. If its under 175k, then no stamp duty.

[Piglet]

Not exactly my area but I think the SDLT issue is relevant to the size of the mortgage rather than the value of the property.

Watch your mortgage co don't fleece you, the lovely C and G wanted me to completely remortgage when I wanted to add new hubby as joint owner. I'd only been with them just over a year and they seriously though it would be nice if I paid them a selection of new fees and paid for the legals (leasehold) all over again.

Most mortgage co's will just allow a transfer of equity rather than behaving like the C and G.

[croyde]

A mate of mine lost his mortgage when he bought his ex out as they reckoned that his single income was not enough.

[SJobson]

Eggman said:

The 'buyer-outer' pays £90,000 - half of the bit you jointly own, and then takes over the £20k that's owed.

You can't just 'take over' the outstanding mortgage if it's in two names. It will remain in two names and the other party will remain liable for the whole of it if you default.

So, you need to redeem that mortgage and take out a new mortgage in your sole name.

[JonRB]

SJobson said:

So, you need to redeem that mortgage and take out a new mortgage in your sole name.

Which is a bit of a bummer in the current climate. Especially if your LTV isn't so good.

[SJobson]

Might not be too bad with a £20k mortgage on a £200k house, though I imagine it will become a £110k mortgage if the OP doesn't have £90k sitting around to pay off the other party's equity too.

55% LTV will get you whatever the best deal out there is. And with interest rates as low as they are, even getting an SVR would be lower than a lot of people's fixes from a year or two ago. Still cheap to borrow.