Asking for a friend- would be good to know any views/experience/no-nos, etc please

He and his partner currently both live in a house she owns. There is still a mortgage on part of it.

He is going to get some cash soon from another property he owns and wants to invest into the house.

Rather than registering it formally and getting the mortgage company aware of it they are thinking of doing a written agreement to say something like:

“He has paid X amount which equates to y% of the current value -whether up or down.

If (perish the thought) they decide to go their separate ways, she will have to pay back to him y% of the then current value (either by selling or remortgaging).

Ongoing costs will then be split, though she will continue to pay all of mortgage on her remaining proportion.”

Is this dodgy legally-wise or tax-wise if only written in some form of agreement?

what do you think are the main risks for each party?

Thanks for help/advice!

IANAL, but can’t see that working with a mortgage involved.

Sounds v.ropey. He’s not bought any share of the house unless he’s listed on the deeds (and that can be done with each owning a certain %age, ‘Tenants In Common’ I think).

I’m not sure why your friend would not want to protect his cash? Just do it properly; refinance the remaining mortgage balance onto a joint mortgage and pay her for half the equity. Alternatively, pay off the mortgage with his lump sum (if sufficient) and then transfer the property from her to him and her officially without lender restrictions.

Consider a formal trust deed as opposed to a scrap of paper if they absolutely want to do it. She holds on trust for the pair of them. This will likely breach the conditions of her mortgage though.

Don’t forget to consider stamp duty in either scenario.

having been screwed over by an amicable property/payment arrangement with a partner, he’s an idiot if he doesn’t do it properly and legally. Unless he wants to be poorer and bitter a few years down the line.

Er….

That sounds rather er not sensible

Depends how trusting and trustworthy you are, the fact that you want to make it semi-legal suggests that’s a bad idea.

I’d have thought that not possible while the mortgage provider still has an interest in the property.

Depending on how it is worded, it *might* be sufficient to give rise to an equitable interest in the property (or at least, that part of the property not subject to the mortgage i.e. the ‘equity’).

However, I would strongly recommend that your ‘friend’ seek advice from a competent professional as to the proper way to deal with it, as there may be unintended consequences down the line (not least that his interest would rank as subordinate to the mortgage co so he could end up losing all his money if the value of the property tanked – which is potentially likely in the current climate).

If your *friend* is willing and able to accept a high level of risk – go right ahead.
If he has a smidge of common sense, take professional – legal – advice.

My strong advice would be do it properly or don’t do it at all. The main risk – well put simply you/ your friend stand a good chance of losing all your/ their money. If you can afford it, or at least are willing to risk it fine, but I can’t think of many people who would be..

Thanks all for thoughts so far. TO be clear, there would be a written, signed and witnessed agreement (Deed of Trust)? agreement produced.
The idea is mainly to avoid the hassle of telling mortgage co/land reg about the change in interest.
Also for clarification, the amount paid would be part of the equity already owned, not somehow straddling any part of the mortgage. The amount of mortgage is currently 1/3rd of the value, and the amount to be paid is not far off that….

Any disadvantages/pitfalls anyone can think of for the owner in this scenario, other than that any uplift in value she would get 2/3rds rather than all of it…?

Unless he has title he will have no standing if things turn sour.

Surely there are easier ways to launder your money 😉

And shrink in the wash? Do it properly with legal advice and title.

The idea is mainly to avoid the hassle of telling mortgage co/land reg about the change in interest.

Which would almost certainly be against the T&Cs of the mortgage and possibly illegal too.

I’ve been in a similar situation.

I paid rent at the market rate to my partner for living in her house, including bills. Meant there was never a thought or issue about it then or after.

If there’s a feeling that he wants to be “involved” in the current house because he’s living there rent free then he should be.

By paying rent to live there.

Any other cash he should pay down the mortgage on his other house or save/invest as he wishes. Whack it in a vanguard ISA an forget about it, but that’s another thread. Just invest it himself, basically, not on a weird joint arrangement on an already purchased house with debt paid down on it and value gone up with no paperwork…

Paying off a partners mortgage with yours own cash will cause issues. The house value will be have a gone up for one thing. Paying off the last 10% of a mortgage that’s been going for 20 years certainly doesn’t mean one owns 10% of the house because it will be have a gone up in value so much!

Well, it might work out well.

And it sounds simple. But if money and people are involved that’s almost a guarantee it won’t be at some point.

Like most of the folks here I’d recommend your ‘friend’ and their partner take legal advice. Sure, you could draft up docs for rental or tenants-in-common or any of the range of ways to share a house with other people yourself. Seeing a qualified solicitor and having them walk through the options will help though.

The mortgage co will need to know if there’s a change of interests in the property.

Its dodgy not because of the risk of putting your cash into someone else’s property, but because your friend is trying to tuck cash out of sight to disguise their wealth/assets. Are they about go bankrupt? Are they liable for child maintenance, or capital gains tax? Elderly parents cash that might go towards care home costs?

Its not far off money laundering, right?

I’m with scotroutes – the mortgage company have primary interest here, it’s not a house you own yet.

If you’re adding money in, then you’re already having to deal with mortgage company to reduce mortgage. It’s easy to add an extra person.

Is there a reason we’re not needing told why the new partner doesn’t want to be know to mortgage company – e.g. bankruptcy?

Pretty sure the mortgage company won’t care what paperwork has been written up – they ‘own’ the property until the mortgage is paid off.

If anything happens, then your mate will get nothing (unless their partner has written something into the will – and that assumes they die and not just separate).

Remortgage and get the old mortgage paid off and a new one for the remaining balance in joint names, would be my suggestion (which is based on having no legal experience or knowledge).

Very silly of your friend to even consider this.

What if she refused to sell or remortgage? He has no legal interest in the property. How will he enforce the agreement? How would consensus be reached on the “current market value”? What if a child is involved? Good luck getting a Court to put a mother and child on the street so he can release his capital from the property.

If he’s putting a chunk of capital into the house then get his name on the deeds. If his partner wants him to put a large lump sum into the property but doesn’t want to give him any share of the legal title he needs to have a serious word with himself.

I would be interested to know which party came up with the idea? Massive red flag here.

cheers all. good points there.
For further info, there would be an agreed valuation as current prior to the % of equity being worked out.
The house has been done up a fair bit in the last 2 years so the uplift of that would be factored into the current value PRIOR to the cash investment being calculated.
I think the real reason they dont want to get mortgage co. involved is due to a few grand of early repayment charges but maybe they should swallow this between them and formalise it.

Either way, a deed of trust drawn up by a real solicitor would be signed (though I imagine the solicitor would have something to say about the mortgage too)…

What would happen if she died? Or just stopped paying the mortgage and the house was repossessed

Your friend should insist they each get their own independent legal advice about the transaction at least.

An agreed valuation is all and good going in but it’s the valuation on the way out your friend needs to worry about. He may find the valuation high on the way in (to keep his % of the ownership low) and low on the way out to keep his share of any equity low.

If he’s not on the title / mortgage, there is nothing to stop his partner securing further debt against the property without his knowledge or consent required. Indeed, what’s to stop her “giving away” further shares in the property to other people which would be returned to her in the event of a break up?

The more I think about the proposal it’s insanity from your friend’s point of view.

I Don’t get it, why would you not just pay the mortgage off if the amount of money he has is just about the same amount as is left on the mortgage?  Surely then they both own the house without a mortgage and everything is really simple….

Just re-read this thread.

Your “friend” does seem very keen and willing to take on a massive level of risk to avoid any public record of him acquiring an interest in a property……