Buying someone out of their share in a house

[Daphnetheferret]

I hope this is the right place to post, I wasn't sure whether to put it here or in Property.

DH and I live in a house that is currently mortgage free. He bought it before we met and owns it jointly with his Father. At the time his father's share was supposed to be an advance on his inheritance in order to help him out when he was made redundant, the agreement was that the will would reflect that he had received this money so his sister would get more.

This was a long time ago. There was never any agreement to pay rent but equally his father has not contributed to upkeep or improvements made to the house which have been significant.

I live in the house as DH's wife but don't have my name on the property.

SiL is now experiencing difficulties and FiL obviously wants to help her out too. He has asked if we can buy him out of his share in the house to enable him to help her buy a house.

So I am looking for advice on how we do this both in terms of practicalities and how we do it fairly. I have never purchased a house so don't know much about the practicalities.

My savings aren't enough to buy him out so we would need a mortgage. I don't know what we would be able to borrow or for how long.

I don't know what we would be able to borrow or for how long.

A mortgage broker will tell you this - or there are lots of calculators online

Is it as simple as using an online calculator? I thought there were lots of new affordability checks now?

I can contact a Mortgage broker but I don't want hard searches on my credit file until we are ready to go as I am aware that multiple searches can harm your chances of being approved.

How would you decide on a value for the buy out in a fair way?

The online calculators are pretty good at giving you a realistic range for how much you could borrow - there will be more detailed affordability checks by the actual bank/broker once you come to apply so obviously you can't be 100% certain until then, and if you have poor credit or other complexities such as relying on maintenance for your income or being self-employed, then you might be wise to assume you will only be able to borrow towards the middle-lower end of the range. But in my limited experience I have found them 100% accurate, I've always been able to borrow what they said I could. They are just generic calculators, it won't affect your credit score in any way. I like the MSE ones...

In terms of agreeing a valuation, I guess it depends a bit on your FIL and how 'safe' you feel you need to be. At the simplest/cheapest end, you could get 3 local estate agents round to suggest a marketing value, and also plug the details into Zoopla and just take an average or the middle valuation of the 3 or similar. Obviously this is only really suitable if there is sufficient trust/understanding all round that there won't be any disputes further down the line - safer (but it will cost) is to get a valuation from a local RICS chartered surveyor (or even 2 in case of dispute). You will need to get the house valued for the mortgage anyway so be prepared for that cost...

You need to start by your husband talking to his dad about how much money he wants. Does he want back £x that he put in, or %x of the value? Who is going to pick up the CGT that your FIL will owe?

Sorting out a mortgage and transfer of property is easy. Online calculators are a good place to start, and a broker can tell you what you’d likely get on affordability without a single credit search.

Your hardest part is potentially not that, but agreeing how much money your FIL gets.

Thanks that is useful.

So far FiL has just suggested that we buy him out for 50% of the current value. We haven't really talked about the mechanics yet, we were a bit surprised to be honest so weren't in a position to get into details.

I'm not sure if I am happy with 50% of the current value as we have improved the property since it was purchased. It has had a new kitchen, new double glazing, new doors and some improvements to the bathroom as well as decorating and gardening. Had we known that he would want to do this we would probably sold and bought somewhere new around the time we got married back when DH was employed (rather than self employed) and we were in a better financial position rather than investing our money in this place.

Suggesting that we simply pay back what he put in might be a better option.

I guess we have to think about who pays all the fees too. I could really have done without this at the current time with DH's business affected by Covid and my earnings affected too.

I hadn't thought about CGT, I will have to think about that as that might be a major issue.

Also he wants to use the money to help buy SiL a house, he's now in his mid-seventies so I guess deprivation of assets could be a concern if he comes into a large lump sum and then gives it away.

A simple way would be current value minus the amounts you have spent on improvements. And he pays half of that to buy you out. But on the other hand he could have been getting rent all this time. So I'd say that has to be considered. And you both have saved money on mortgage interest. You have benefited from this arrangement for a very long time. Your fil hasn't made anything. I'd say legal costs should be split. I don't think you can get away with only paying him back what he put in as he jointly owns the house.

You should also be aware that should your fil for and he has not left anything in his will to leave to your dh his 50% of the house becomes part of his estate at the current market value .
If you sil is having money problems then she would be in her right to claim 50% of that portion ( assuming they are the only siblings )
So in reality depending on his will , you have always been in a potentially dodgy situation.
Last thought is if he has wrote his will to reflect the part ownership of the house, and you do a deal to free up some money then the sister may still be entitled to more at the time of the will. ie. His will said all to receive 70% of assets (because your st had house ) if gift of money is given to sip but will not changed to reflect, she would still get 70% of the original will.
You need to sort all this out pronto.

Typos make that harder to read, but I hope you get the gist !

@VictoriaBun

DH and FiL own the house as joint tenants rather than tenants in common so upon the death of FiL the house would revert to DH rather than forming part of the estate.

Unfortunately I don't know how he has dealt with it in the will, just that he had said that the will would take this into account.

Frustrating because DH raised the whole situation with him when I moved in and he was happy for it to just stay the same otherwise we would have bought somewhere else without his money or bought him out at that stage, especially as the location was quite inconvenient for my job.

This seems hugely unfair on your DH.

Does you DH have any other siblings?

If you FIl was planning to leave 50/50 to SIL and DH in will, that would suggest 25% of the house is 'hers'

Could you afford to remortgage, give him 25% and him sign his remaining 25% to your DH ?

In effect, giving away his assets early?

The whole situation seems like a legal minefield tbh. Was paperwork drawn up originally?

I don’t think the improvements that you’ve listed will have made a huge difference to the property value. When you said significant, I imagined things like extending - not just new kitchen and windows type things.

Yes, he didn’t pay for those... but he also didn’t charge you rent for his half of the house or benefit from it.

You said that this all happened a long time ago, so most likely any gain in value will be due to time, not improvements anyway.

My gut feel is if he put in 50% of the purchase price, 50% of the value is fair.

He clearly wanted it to be protected in case he needed it, as he didn’t gift the money.

One last question. Was there ever a mortgage on the house ? If so, did you FIL pay towards that ?

@HolyForkinShirt there was a mortgage originally (before I was on the scene) but FiL wasn't on the mortgage. DH bought with someone else originally FiL bought in when they wanted out.

There are just the two siblings.

There was no paperwork drawn up at the time other than FiL changing his will. There was no intention that SiL would ever have a share in DH's house, the idea was that when FiL died DH would get the remainder of the house and that his share of the rest of the estate would be reduced accordingly.

I've read a comment elsewhere that suggested that anyone who is named on the deeds of the house needs to be named on the mortgage. Would this make it basically impossible to get a mortgage if a property was jointly owned with someone in their 70s?

You wouldn’t be in that situation though - you’d be raising the mortgage to take him off the deeds. That’s fine... happens all the time with divorces! The solicitor and mortgage lenders know what’s going on.

You can be on deeds anyway, without being on the mortgage. It’s the other way round the lenders don’t like - if you’re on the mortgage but not on the deeds they’re lending you money but you have no collateral!

However you sort this out, can I suggest that his family have a very frank conversation about this inheritance.

Say he paid £50K into the house, and 50% of the value now is £100K.

He dies tomorrow, and the executors will consider his asset in half the house is £100K.

Say the total estate is £200K.

SIL gets £100K, and your husband gets nothing. Will he see that as actually, he only got £50K and she’s getting £100K, twice as much?

Money does shitty things to people. Any expression of wishes with the Will should not say vague things like, “take into account the money I put towards son’s house.” Make sure everyone is clear now.

Seems unfair that SIL will get help for being in financial difficulty yet it might make your DH end up In financial difficulty trying to find the money.

Thanks @Ellisandra all valid points.

With the question about him being on the mortgage I was thinking more about whether his plan to help SiL buy a house is workable. It would be awful to sort all of this out, pay fees and for him to pay CGT and then find that they can't buy her a house. He won't have enough to buy her somewhere outright, I think she would need a mortgage unless they bought a small flat and he was able to put another chunk of capital in.

The point about how the inheritance is divided is also a good point. They need to be clear on what is happening if things aren't straight forward. Hopefully they can have a frank conversation about it all.

A fair way would be to get 3 valuations and pick the mean value minus off the cost of your improvements and then divide the equity by two. That will give you the value of FIL share. I don't agree that those improvements should be ignored because as you've said you wouldn't have stayed there and improved the home had you known the goalposts were going to be moved.

@finished31 I know, that is a concern, but they are thinking that they helped DH out when he was in difficulty and they want to do the same for SiL now.

It is leaving a bit of a bitter taste in some ways though. We will need to make changes to afford this and SiL's partner won't do the same. I don't want to see DH have to put his business on the back burner to get a job when her partner won't do the same, and it worries me that it impacts DH's security in the event that anything happens to me/my earning capacity.

I think she’d be able to a mortgage on the part she owns... that’s basically what my XH did when I moved - I came off the mortgage but remained on the deeds. What the mortgage company insisted on was first charge on the property - so basically they were the priority creditor. That’s standard.

Can you talk to a solicitor - or maybe AgeUK can help - about the implications if he needs care?

My FIL was in a care home but the coubcil couldn’t force a sale on the house whilst my MIL lived there. I don’t know how that would work if it’s not a home he was resident in, and not a spouse.

@redastherose there was always the possibility of the goalposts changing (care home fees?) because FIL chose to buy into the property and not gift it. It might not have been an outright plan, but it’s not that unlikely that his circumstances might change in some way.

I’m not sure there’s a place for bitterness - just think how much interest you’ve saved, not having a mortgage for the other half of the house. You said this happened a long time ago, so that’s a lot of interest.

We aren't actually bitter about this, and any bitterness there might be is reserved for SiL's partner (and there is quite a lot of back story there) not SiL or FiL. We were trying to think of ways to help her before this.

The care home fees issue actually is a good reason for us to get this sorted and get FiL's name off our property now. My research suggests that the value of his share in our home could be considered in means testing for his care. There is no suggestion that he will need care but that is a problem that none of us had really thought about until now.

I am a bit worried though that if we transfer a large chunk of cash to him, and he then uses that to buy a house jointly with SiL care home fees will still be an issue, especially as he is now older.

Further he will have paid CGT on the proceeds of the sale and I guess there could be IHT implications too depending upon how long he lives.