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Original poster

Is this a good or a bad idea? Friend and mortgage

44 replies

Fantasisa · 27/07/2020 11:46

DH and I are divorcing. I can't get a big enough mortgage to buy by myself and a very close friend has suggested for us to buy a properly together where I live that only I would live in. We would both put down the deposit.

The mortgage would be roughly the same as rent would be so it seems like I could pay that by myself while she continues to rent where she lives. She has been considering buying a BTL property somewhere anyway and has suggested this option.

The big issue I can see is if her circumstances change and she suddenly needs her money back or wants to come off the mortgage and then I'd be stuck. But hopefully by then I could remortgage to free up some equity to repay her.

Is this a good solution or a stupid idea?

OP posts:

Original poster

Fantasisa · 27/07/2020 13:11

Has anyone got any ideas if it is stupid or workable please?!

OP posts:

Delbelleber · 27/07/2020 13:14

What does she want in return when you eventually sell the house?
Will she contribute to the mortgage or what? Sounds complicated. I wouldn't like to get myself in to that situation.

cantelope · 27/07/2020 13:16

I think it could be good if you have all the proper legal protections etc. You'd be no more at risk legally of eviction than you would renting privately, if she decided she needed to sell up.

The risk really is the relationship, right? Do you trust that the two of you could handle the stress / competing interests of the arrangement and keep your friendship in tact?

Interested in this thread?

Then you might like threads about this subject:

General money

Original poster

Fantasisa · 27/07/2020 13:21

The aim would be for me to buy her out when I could afford to in the future but that wouldn't be in the short term. Once I could remortgage or similar and buying her out would be at whatever the market rate of the house is then so she should hopefully make some money. No, she wouldn't contribute to the mortgage, I would pay that but then, it is no different to paying rent somewhere except I'd have a stake in something for the future.

The background from her decision is that she lives in her boyfriend's house and wants to be on the ladder herself somewhere. The danger would be to me if they split and she needed to get off my mortgage to buy her own place somewhere.

She is one of my oldest friends and we have weathered lots of personal storms together.

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HattieMid2 · 27/07/2020 13:23

As PP said, as long as you sort the legal stuff really well, I think it's a good idea!

Delbelleber · 27/07/2020 13:25

What if the house massively increases in value. Then you where would your profit be when you are buying her out?

houstonspca · 27/07/2020 13:26

I think you need to be clear on what she expects when you sell. Is it just her deposit, her deposit plus 50% of any equity, or something else?

What about if you want to stay in the house forever and can't afford to buy her out? What if she suddenly needs the money? Does she have access to other funds or is this ALL her money?

Franke · 27/07/2020 13:28

It's not really a buy to let though is it? She would effectively be putting some capital in which would appreciate at the same rate as the house value. She wouldn't be getting anything else out of it such as a monthly rental income. If this is the case and you were paying everything else, it could be a fairly straightforward legal agreement. What about maintainence and renovation costs though?

2155User · 27/07/2020 13:29

Great idea!

AS LONG AS you sort all the legalities out properly.

Original poster

Fantasisa · 27/07/2020 13:31

We would both put down 50 per cent of the deposit, I would pay all the mortgage and she would get 50 per cent of any price rise (or fall I guess too).

Benefits for me mean I am on the property ladder paying about the same as I would for rent.

Benefit for her is that she has a long term investment with someone she trusts.

She is a high earner but I'm not sure how much more in savings she would have to drawn on if her circumstances changed before she would need the house to be sold/me to buy her out somehow. I would need the LTV to stack up before I could remortgage.

OP posts:

Original poster

Fantasisa · 27/07/2020 13:32

@Franke I guess it isn't a BTL in that sense, no. But with house prices as they are she mostly wouldn't make anything extra on top of paying a mortgage on a BTL and getting tenants in that way.

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LolaSmiles · 27/07/2020 13:33

It could be a good idea, but it's also a minefield in places.

For example if you put a new kitchen in or bathroom or do any work that increases the value of the property, you pay all the costs and she gets the increase in value.

If her and her boyfriend split and she wanted to buy I believe the banks would have to factor in the mortgage on your shared property when assessing her affordable lending amount.

Should she have any financial difficulties in the future then your home could be under threat.

If she takes out any secured loans then they are often secured against a property, which would be your house.

Personally I wouldn't.

itswinetime · 27/07/2020 13:34

She wants to get on the property ladder I get that but I don't get what she thinks she would get out of doing it this way?

BTL she gets the rent and the increase in property value

But if your not paying rent to her just the mortgage is she expecting to get some of the increased value back?

Because otherwise while it's a very nice thing of her to to it's not the most sensible financially for her. I think you both need to talk it through and then if your going ahead get things sorted legally

Original poster

Fantasisa · 27/07/2020 13:34

Maintenance and renovation costs I have assumed I'd pay, the same way with a shared equity property. But good idea to have that as a point to discuss.

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LunaLoveFood · 27/07/2020 13:37

It's almost like the part but schemes, but rather than a company it is your friend. As long as you are both happy with all of the legal stuff then I can't see a problem.

Original poster

Fantasisa · 27/07/2020 13:37

@LolaSmiles They are all very good points. I suppose it is no different in that respect to buying with a partner though?

I don't think there is anything in it for her, apart from the return on her investment if the property market rises which there is, of course, no guarantee that it will. Although she said she isn't making any money on interest on her savings anyway.

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itswinetime · 27/07/2020 13:38

Sorry crossed post so she will be getting 50% of any value increase, that's tricky I agree you will be responsible for all's the maintenance and improvement costs and she gets the benefit!

Also you talk about using freeed up equity to pay her back but only half of any equality would be yours so you will always be in debt to her from what I can tell?

StripeyDeckchair · 27/07/2020 13:40

@Fantasisa

We would both put down 50 per cent of the deposit, I would pay all the mortgage and she would get 50 per cent of any price rise (or fall I guess too).

Benefits for me mean I am on the property ladder paying about the same as I would for rent.

Benefit for her is that she has a long term investment with someone she trusts.

No you've got that wrong. If the house is £20

friends deposit £5
your deposit £5
your mortgage £10

You own 75%
Friend owns 25%

You need to engage a solicitor and have a legal agreement that covers all eventualities. Including improvements, who pays for them and how it affects the ownership percentages in the house.
Eg you install a new kitchen, new bathroom and new flooring throughout cost £5
Now the investment in the house is £25 and the ownership split 80%/20% you/friend

Original poster

Fantasisa · 27/07/2020 13:42

Thanks @StripeyDeckchair. So much to think about.

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Palavah · 27/07/2020 13:44

So you would both be on the mortgage and the deeds? Effectively you'd be paying rent half to her and half to yourself which you would each then use to pay your share of the mortgage? And you'd share fees and stamp duty 50:50?

Absolutely you would need the legals to be very clear. Would you be tenants in common? Jointly and severally liable?

What happens if she wants her cash out sooner than you can afford to buy her out? Will you split the fees then too?

Also - make a will.

SimonJT · 27/07/2020 13:45

I’ve done this with a friend, due to the type of job he has getting a mortgage is very difficult. So I put in a 20% deposit and I’m on the mortgage, our agreement was when he could get a mortgage on his own I would come off the mortgage and he would return my 20%.

Its worked fine for us and I’m in the process of getting my deposit back.

You have to consider that if she decides to buy in the near future she may struggle as her mortgage with you will have a big impact on affordability.

WaltzingBetty · 27/07/2020 13:46

It's a perfectly sensible idea but you both need legal advice to ensure each investment is protected and fairly split.

LolaSmiles · 27/07/2020 13:46

They are all very good points. I suppose it is no different in that respect to buying with a partner though?
For me it would be because it I bought with a partner then we would either draw up joint tenants or tenants in common (depending on the assets and each person's situation), but we would also split the mortgage appropriately and any maintenance and renovation costs.

In this situation your friend stands to make quite a tidy profit whilst you pay off the mortgage and maintain the house.

Palavah · 27/07/2020 13:46

I don't mean to be discouraging, just make sure you work out the details, like after how long do you expect that you'd would have the right equity /earnings to take on the mortgage by yourself if you had to?

Original poster

Fantasisa · 27/07/2020 13:48

How long were you on it for @SimonJT?

Good to hear it worked well.

I could also start saving up from day one to pay her back but that will take a very long time with two DC to pay for too.

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