Equity Advice

tjg04

Hello all, we'd appreciate some advice.

My girlfriend are currently saving for a deposit towards buying a house. Because of some (now historical) bad credit on her behalf we'll be getting a mortgage in my name only. We intend to draw up a legal agreement to protect her investment should we break up (this is very romantic I know!)

We've come to somewhat of an impasse with regards to how any equity (or liability for negative equity) should be split between us should we go our seperate ways in the future.

So we'd appreciate some advice from third parties.

Some background, which may or may not be relevant:

• We're both contributing 50:50 to the deposit from our independant savings
• My income is roughly twice that of my girlfriends
• We currently rent, and our joint expenditure (rent, bills, food etc.) is split so that I pay approx two thirds, her the remaining third. This is a situation we're both happy with.
• We're not married, and have no children (though this may change in the future)

I don't want to bias your opinions with what our (differing) views should be on this.

Thoughts?!

neverdespairgirl

Sounds to me as if it should be split 50/50

erdd2

Whilst not romantic this is very sensible given the years of litigation many separating couples endure...not that this will be the case for you!

The party not on the deeds/mortgage has the most to gain whilst together if contributing less than 50/50 and the most to lose if antagonistic separation ensues. And vice verse.

A carefully worded agreement that is formally binding and protects both parties fairly with consideration to all of the circumstances would give you both peace of mind.

pinkteapot

neverdespairgirl wrote: »

Sounds to me as if it should be split 50/50

I agree with this as you're splitting the deposit evenly.

I'm guessing that because of the split in how you pay the bills, you want to have more of the equity.

I know you're contributing more to the bills now but what if that changes? What if your other half earns more and you start paying the bills 50:50? Are you going to change the agreement every time the finances change?

What if one of you works part-time or even stays home with the kids if you have any and therefore the other person is paying 100% of the bills? Would you change the agreement at that point to give the person paying the bills most of the equity?

In the first few years of owning, most of the mortgage repayment simply pays off interest. Your equity in the house barely grows in that time and by the time you do start to build up real equity as a result of the mortgage repayments, the way you split payment of them between you will very likely have changed.

These agreements are useful for giving each party different shares in the equity when the amount being contributed to the deposit is uneven.