Friends lent me deposit on a property – are they entitled to its increase in value?
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Version 0 of 1. Q My friends lent me £30,000 so that I could put down a deposit on a property worth £240,000. The mortgage is in my name and I have paid for everything except the £30,000 deposit. Stupidly, I didn’t put a contract in place when I brought the property as they were good friends. I plan to pay them back the £30,000 but when we last met, they said that when I had paid this back, they would be entitled to 100% of the profit. I can’t believe this is right, from my understanding they would be entitled to only a fraction of the profit less the costs involved in buying the property and stamp duty. I would like to get a contract in place as soon as possible so any advice would be welcome. EM A Why your friends think that they are entitled to 100% of any increase in the value of your property is beyond me. Had your friends injected £30,000 of cash into the joint purchase of the property with you, they would have been entitled to any increase in the property’s value – but only a proportion of it rather than 100%. As it is, they are entitled to precisely 0% of any increase in value because the £30,000 cash injection was a loan. Making a loan does not carry with it the entitlement to capital. For example, when you take out a mortgage, you agree to pay back what you borrowed plus interest. If, when you sell your property, it has gone up in value, the mortgage lender still gets back only what is outstanding on the mortgage and not a penny more. If your friends intended to use their loan to you as a way of making money, their only option would have been to charge you interest (on which they would have to pay income tax). So, to be fair to them, perhaps you should renegotiate the terms of the loan, agree to pay interest and get it in writing. The alternative would be to make them joint owners of the property. You would need to use a solicitor – which could be the one you used when you bought the property – so legal fees would be involved. Muddled about mortgages? Concerned about conveyancing? Email your homebuying and borrowing worries to Virginia Wallis at virginia.wallis.freelance@theguardian.com |