Splitting house ownership

boswell99

Hi everyone,

Looking for some advice on how to split ownership of a house. My boyfriend and I are thinking of buying sometime in the next year or so, but whilst I will be bringing around £90k to the deposit, he has £20k to contribute. We'd be looking at buying somewhere between £300-£350k.

Currently he's a student whilst I'm in full time employment. When he graduates we'll buy somewhere and will have joint bank accounts etc from then on. I will still be earning more than him, but that doesn't bother me - we will just have a 'household' income from which all mortgage/bills etc are paid.

However, although the plan is that we will be together for the rest of our lives etc, we also want to be pragmatic about the fairly substantial difference in deposit size and what would happen if the worst happened and we did end up not together anymore, for whatever reason.

So far we were thinking of splitting ownership of the house as follows: me 60% him 40% (because on a £350k house, my share of the deposit equals around 25% and his 5%, then the rest is split 50/50?). Then after a few years/when we got married/had children - whatever we end up agreeing - we would change it to 50/50.

I suppose what we'd like to know is does the above seem fair/reasonable, and also from a practical point of view is it something that would be relatively simple to do?

Any advice much appreciated!

Paul_the_Painter

Another way to look at it is that between the 2 of you will own 1/3 of the house. After you move in you will be jointly responsible for the mortgage. So the 2/3 you don't own will be split 50/50.

So have an agreement drawn up whereby in the event of a sale 1/3 of the final sale value after costs, but before mortgage repayment will be apportioned in the ration of 2:9. Any remaining equity after mortgage repayment to be split 50/50 between the 2 parties.

Some numbers/examples

A contributes 20k
B contributes 90k
Purchase price £330k
Mortgage £220k

10 years later............

Scenario A

House now worth £600k
Outstanding mortgage £190k

1/3rd of final sale value = £200
A gets £36k
B gets £164k
Mortgage company gets £190k
£110k left A and B get £55k each

Totals - A gets £91k B gets £219k

Scenario B

House now worth £300k
1/3rd of final sale value = £100k
A gets £18k
B gets £82k
Mortgage company gets £190k
£10 k left A and B get £10 each

Totals - A gets £28k B gets £92k

The formula above does bias towards benefiting the party with the lower amount of deposit if prices drop, but seems pretty fair.

The problem with the idea of fixing the split at 60/40 at the beginning is that if you split almost immediately you will lose out hugely. Much better in my mind is to own the property as Joint Tenants, but with a seperate legal agreement covering what would happen if you split up.

If you set up the ownership as 60/40 from the beginning the house is owned 60/40 after the debts have been paid off so you could sell for exactly what you bought for 1 year after moving in and the £110k equity would be split 60/40. That would give you £66k and him £44k - not ideal!!

mostlycheerful

“we also want to be pragmatic about the fairly substantial difference in deposit size and what would happen if the worst happened and we did end up not together anymore, for whatever reason.”

Yes indeed, also known as the exit route, which is one of the most important aspects to plan and agree at the start of any business venture such as joint property buying. So well done for being aware of that and planning for it now.

Good analysis by Paul the Painter which appears to apportion the figures in a just, equitable, sensible and realistic way. That looks like a good template he’s laid out for you to base your planning on. Unless, as he mentions, it’s perhaps a bit skewed in favour of the lesser partner. So maybe a bit of tweaking might be in order.

“When he graduates we'll buy somewhere and will have joint bank accounts etc from then on.”

No, always keep the bank accounts separate then you’ll both always be safe and clear about what’s what. Never mix up business with pleasure, always keep monies separated from emotions. That way they’ll never conflict. If you muddle them up together then the one can affect and even destroy the other. And the exit route can be a painful nasty mucky long drawn out shambles in which at least one of the parties and often both parties can lose out bigtime, both financially and emotionally - instead of it being a relatively simple straightforward affair, which it can be if you simply apply basic and separated business and accounting principles from day one and all the way through.

“I will still be earning more than him, but that doesn't bother me”

Not at the moment while you’re all rosy tinted spectacles and all loved up but in the cold hard light of day if and when you split then you don’t want to find that you’ve mugged yourself unnecessarily simply due to generosity and naivete and lurve. And it’s unhealthy to a relationship to have the poorer partner financially dependent on or using the richer partner, that’s an imbalance that should very much be kept separated and never lumped in together. You should always keep the imbalance recorded and accounted all along and therefore always have separate accounts that can easily be totted up at any time and from any point of view.

In UK half of marriages split up in the first 5 years so it is reasonable to estimate that the split up rate for unmarried partners is likely to be something of the same order and could in fact be even more (or possibly less if marriage weakens a relationship by putting it under extra strain). Also the figure mostly quoted for cheating in marriage is 65% to 70% of married partners cheating (occasionally the figure quoted is 30%) so you’ve got a chance of 2 in 3 (or maybe 1 in 3) that sooner or later your partner cheats and you may not find out for a while as the wife or husband is often the last person to find out - so you don’t want to find that your financial generosity has been abused while your partner has been doing the dirty on you. That would just make a tragedy even more tragic. And unnecessarily so, this ugly financial aspect of splitting up is relatively easy to avoid if you simply always run two separate accounts.

“- we will just have a 'household' income from which all mortgage/bills etc are paid.”

No, one of the biggest causes of marriage splits (and probably unmarried relationships as well) is financial imbalances and the resultant stresses and arguments and problems over money and finances. So, again, as with the above suggestions, keep all finances separated. Then you’ll both always know what’s what and then neither party will ever get mugged by the other, either unintentionally or knowingly. And there won’t be any messy hard to quantify muddled histories to try to unravel or repay if and when you split up.

So for capital purchases and ongoing mortgage payments split them according to what each of you are able to put on the table and therefore the resulting ownership will be in the same ratios, as per Paul the Painter’s templates (or perhaps a bit tweaked for more accurate fairness). For ongoing expenses split them 50:50, don’t you pay his share as that’s a recipe for disaster and could potentially seriously undermine the relationship.

And just cos for a while he’s earning less than you won’t necessarily always be the case. On average men’s earnings far outstrip women’s and all sorts of factors could at some point affect your earning capability, such as, for instance, having kids, getting ill, being made redundant, business failure, wanting to do a different job or go back to college or wanting to go travelling or live somewhere else or start your own business etc.

Of course if you get married and have kids and you stop work while he carries on working, or the other way round, then you’ll probably want to reevaluate to what extent the finances are separated or pooled. But bear in mind that just having kids doesn’t necessarily keep couples together, plenty of people split up while they’ve got kids so, again, although having kids would predicate a new way of agreeing the finances you should still have a clearly defined exit strategy in place if you want to avoid some or all of the pain of the financial side of a split. Otherwise you’ll just go through all the hell that most divorces create, including the financial pain.

It normally enhances and strengthens a relationship if each party retains some individuality and freedom, which traditionally, for instance, includes such things as the man having his shed down the bottom of the garden to go and hide in and the woman going out for girls’ nights out and such like. Part of why a lot of relationships fail is that they’re suffocating and militate against each party as they’re both in too deep. People are freer and more individualistic these days than they used to be and in particular women have by and large relatively speaking been liberated and so if they are to survive then modern relationships have to evolve to cater for this. So separate finances is often the way to go for this reason as well.

Yeah, don’t make the simple but damning mistakes that so many people do. Business is business and house buying is business and it’s not something to do as an extension of an emotional relationship, it should run parallel as a separate entity. A joint property business needs to stand on its own as distinct from the emotional relationship. It needs to be precisely definitively demarcated from start to finish, always - and especially in the modern world in which relationships are a lot more transient and in flux than they used to be in times gone past. Yeah don’t run the risk of losing out unnecessarily – and don’t end up letting lawyers and courts dictate to you about your finances as many people who divorce currently do.

Blah blah blah, etc for another 50 pages.

zzzLazyDaisy

He is a student at the moment - not only is he not earning much/anything but he is probably also building up debt (this isn't a criticism, it is a fact of life for most students).

Would it be possible to use your £90k deposit to buy a house in your sole name with a mortgage you can afford to service on your own? Then once he has finished his studies and is earning (he may not get work immediately), you can look at putting the house into joint names.

This will save him accommodation costs and so help to keep his debt level down and will give you some stability and security (this assumes that you are both currently living in the same town, of course).

getmore4less

equity shares are relatively easy if you treat the loan seperate from the asset.(allthough the lender does different) and pretend you bought with cash.

Working on £90k, £20k and a £350k purchase

You own £90k+ the share of the mortgage you support, £20k + for the OH

So if you do the loan 50:50

£90k+£120k:£20k+£120k so 210:140 or 60:40

When you sell you get the same ratio each from the sale and pay off the 1/2 outstanding mortgage each from you shares.

Any capital improvements should be paid at the the ownership ratio or it gets messy recalculating.

Many people make the mistake of taking (shares of)debt off before the split of equity when the shares of debt should be paid from the share of ownership not equity(pretend you each borrowed from you mums so bought cash and not with a mortgage).

boswell99

Sorry been away so not online, at work at the moment but just to say thanks for the replies and will read through them all properly at home tonight.

andys15

mostlycheerful wrote: »

“we also want to be pragmatic about the fairly substantial difference in deposit size and what would happen if the worst happened and we did end up not together anymore, for whatever reason.”

Yes indeed, also known as the exit route, which is one of the most important aspects to plan and agree at the start of any business venture such as joint property buying. So well done for being aware of that and planning for it now.

Good analysis by Paul the Painter which appears to apportion the figures in a just, equitable, sensible and realistic way. That looks like a good template he’s laid out for you to base your planning on. Unless, as he mentions, it’s perhaps a bit skewed in favour of the lesser partner. So maybe a bit of tweaking might be in order.

“When he graduates we'll buy somewhere and will have joint bank accounts etc from then on.”

No, always keep the bank accounts separate then you’ll both always be safe and clear about what’s what. Never mix up business with pleasure, always keep monies separated from emotions. That way they’ll never conflict. If you muddle them up together then the one can affect and even destroy the other. And the exit route can be a painful nasty mucky long drawn out shambles in which at least one of the parties and often both parties can lose out bigtime, both financially and emotionally - instead of it being a relatively simple straightforward affair, which it can be if you simply apply basic and separated business and accounting principles from day one and all the way through.

“I will still be earning more than him, but that doesn't bother me”

Not at the moment while you’re all rosy tinted spectacles and all loved up but in the cold hard light of day if and when you split then you don’t want to find that you’ve mugged yourself unnecessarily simply due to generosity and naivete and lurve. And it’s unhealthy to a relationship to have the poorer partner financially dependent on or using the richer partner, that’s an imbalance that should very much be kept separated and never lumped in together. You should always keep the imbalance recorded and accounted all along and therefore always have separate accounts that can easily be totted up at any time and from any point of view.

In UK half of marriages split up in the first 5 years so it is reasonable to estimate that the split up rate for unmarried partners is likely to be something of the same order and could in fact be even more (or possibly less if marriage weakens a relationship by putting it under extra strain). Also the figure mostly quoted for cheating in marriage is 65% to 70% of married partners cheating (occasionally the figure quoted is 30%) so you’ve got a chance of 2 in 3 (or maybe 1 in 3) that sooner or later your partner cheats and you may not find out for a while as the wife or husband is often the last person to find out - so you don’t want to find that your financial generosity has been abused while your partner has been doing the dirty on you. That would just make a tragedy even more tragic. And unnecessarily so, this ugly financial aspect of splitting up is relatively easy to avoid if you simply always run two separate accounts.

“- we will just have a 'household' income from which all mortgage/bills etc are paid.”

No, one of the biggest causes of marriage splits (and probably unmarried relationships as well) is financial imbalances and the resultant stresses and arguments and problems over money and finances. So, again, as with the above suggestions, keep all finances separated. Then you’ll both always know what’s what and then neither party will ever get mugged by the other, either unintentionally or knowingly. And there won’t be any messy hard to quantify muddled histories to try to unravel or repay if and when you split up.

So for capital purchases and ongoing mortgage payments split them according to what each of you are able to put on the table and therefore the resulting ownership will be in the same ratios, as per Paul the Painter’s templates (or perhaps a bit tweaked for more accurate fairness). For ongoing expenses split them 50:50, don’t you pay his share as that’s a recipe for disaster and could potentially seriously undermine the relationship.

And just cos for a while he’s earning less than you won’t necessarily always be the case. On average men’s earnings far outstrip women’s and all sorts of factors could at some point affect your earning capability, such as, for instance, having kids, getting ill, being made redundant, business failure, wanting to do a different job or go back to college or wanting to go travelling or live somewhere else or start your own business etc.

Of course if you get married and have kids and you stop work while he carries on working, or the other way round, then you’ll probably want to reevaluate to what extent the finances are separated or pooled. But bear in mind that just having kids doesn’t necessarily keep couples together, plenty of people split up while they’ve got kids so, again, although having kids would predicate a new way of agreeing the finances you should still have a clearly defined exit strategy in place if you want to avoid some or all of the pain of the financial side of a split. Otherwise you’ll just go through all the hell that most divorces create, including the financial pain.

It normally enhances and strengthens a relationship if each party retains some individuality and freedom, which traditionally, for instance, includes such things as the man having his shed down the bottom of the garden to go and hide in and the woman going out for girls’ nights out and such like. Part of why a lot of relationships fail is that they’re suffocating and militate against each party as they’re both in too deep. People are freer and more individualistic these days than they used to be and in particular women have by and large relatively speaking been liberated and so if they are to survive then modern relationships have to evolve to cater for this. So separate finances is often the way to go for this reason as well.

Yeah, don’t make the simple but damning mistakes that so many people do. Business is business and house buying is business and it’s not something to do as an extension of an emotional relationship, it should run parallel as a separate entity. A joint property business needs to stand on its own as distinct from the emotional relationship. It needs to be precisely definitively demarcated from start to finish, always - and especially in the modern world in which relationships are a lot more transient and in flux than they used to be in times gone past. Yeah don’t run the risk of losing out unnecessarily – and don’t end up letting lawyers and courts dictate to you about your finances as many people who divorce currently do.

Blah blah blah, etc for another 50 pages.

Wow, and I thought romance was dead.

Sensible_Jess

andys15 wrote: »

Wow, and I thought romance was dead.

Actually the OP is being very sensible and her pragmatic approach will (hopefully) sidestep a lot of the future hassles that some couples go through regarding money.
Talking about bills etc now will help too, as some people have different ideas about what their monthly outgoings should be!

OP - The suggestion of getting a house now only in your name seems to me like a good one, but I wonder if having a 90K deposit rather than a 110K deposit will mean you might miss out on the best rate mortgage offers as your LTV (Loan-to-Value) might fall above 70%. Worth looking into this further before making a decision.

In any case, drawing up a Declaration of Intention (?) (might be incorrect wording) with a solicitor about how you both are paying for the house now and in the future will smooth the path ahead for you both - making it clear what you are both reposnsible for now, and what might happen if things don't go so well in the future.

As someone who been through this - if things go wrong it's not nice when you have to sort things out later on (through solicitors) and will be costly to you both.:(
And also, now that I'm settled again , it was a good thing to get the finances sorted before moving in together as we discovered some surprises!
I wish you luck and happy house hunting

S-J