Tenants in Common - percentage share of property calculation

Rockula

Hopefully somebody with a good maths brain can help me out here.

My partner and I are taking are taking out a joint mortgage as tenants-in-common on a property which I have owned for around 9 years, and are wondering how best to divide the property when we come to sell. Assuming the property has not decreased in value, we are proposing that I will automatically keep the equity that I have built up so far, around 60k, and split any further profit gained equally 50/50. We will be making equal monthly repayments of approximately £450 each on the mortgage which currently stands at 160k, and the current value of the property is approximately 220k.

What I need to find out is the calculation for working out the percentage share of the property owned by each of us (By my reckoning, I make it 64% to me and 36% to my partner, but I'm really not too sure if this is right or how I got there!).

Also if anyone has any thoughts on whether this would be a fair or unfair way to split the property, they would be very welcome.

Thanks for your help.

Thrugelmir

Simplest way is for you to receive the first £60k of any sale proceeds then divide the remainder equally.

As if you sold today thats what you'd walk away with.

getmore4less

The fair/equitable way.


£220 value
£60k your equity
£160k mortgage to be paid 50:50

you own 140:80 or 63.6% : 36.4%

When you sell you split at that % and then pay off 1/2 the mortgage each.
( a common error is to pay off the mortgage then split)

Thats the proper way to do it and it works for all value of rise/falls.


If you want to fix your equity and spilt any future rise/fall 50:50 then the easiest way to think of this is you give the OH a interest free loan of £30k and you own the place 50:50 , on sale you pay off the mortgage, split whats left 50:50 then you get £30k of the OH to pay off the loan.

problem is that does not work for all rise/falls so is a flawed approach.


Another option that can work is that you own 50:50 but split the mortgage to equalise the ownership.
You need to fund £110k each so you fund £50k of the mortgage OH funds £110k making the mortgage split 31.25% 68.75%.

When you sell you split the proceeds 50:50 then pay of the outstanding mortgage in those %.


You also have to think about how you approach capital investments like improvments and maintanence. Owning 50:50 makes thei easier than other %ages

Rockula

Thanks for both your quick responses

getmore4less wrote: »

The fair/equitable way.


£220 value
£60k your equity
£160k mortgage to be paid 50:50

you own 140:80 or 63.6% : 36.4%

When you sell you split at that % and then pay off 1/2 the mortgage each.
( a common error is to pay off the mortgage then split)

Thats the proper way to do it and it works for all value of rise/falls.

I think we'll probably go with this method - this was the same percentage outcome we had somehow clumsily reached, and we agreed was fair, but it is reassuring to see the calculation backed up. But we will also take a longer look at the other methods you have kindly suggested. Thanks again

DVardysShadow

getmore4less wrote: »

When you sell you split at that % and then pay off 1/2 the mortgage each.
( a common error is to pay off the mortgage then split)

I agree with you 100%. Effectively with the mortgage, you are renting the money - one party is renting all their share. Where this goes wrong however, is if house values drop - the party renting the money for all their share has no equity and will have to fork out the difference. Essentially, they are on a 100% mortgage for their share and very vulnerable in the short term to negative equity. Ideally they should bring some cash to the deal and buy some of the non mortgaged equity up front thus increasing their stake.

dandandoodle

Hi there, I'm in a similar situation. My boyfriend and I are buying a house as tenants in common (he is putting down the deposit and i will be paying half the mortgage). The property is £208K, his deposit is £62K and our mortgage which we will be paying 50.50 is £146K. How did you work out the percentages for each person?......my maths isn't that great!

DVardysShadow

Same method as getmore4less used

You are renting 73k by way of mortgage, he is putting in 62k and renting 73k. by way of mortgage

You are putting in 73k total. Your share is 73/208

He is putting in 135k total. His share is 135/208

dandandoodle

Thank you for that!!