How to split house & mortgage 3 ways when 1 person isn't contributing toward deposit?

Sheveko

You've got to love the Internet. It's extremely unlikely we could have thrashed this out and got as deep an understanding as we now do if we'd simply paid a solicitor to advise us. Thanks to all of you for your input.

firsttimetom

Raggie wrote: »

off topic..... but similar....

Three men go into a shopt,they buy a tv for £30, they all hand over £10 each then the shop assistant is told that the tv is actually reduced to £25 so the assistant takes the £5 change, gives each man £1 each change and keeps the remaining £2 for himself. Now each man has paid £9 each (£27 altogether) and the shop assistant has £2 where is the other £1?

Very Clever. I had to read that a few times before I sussed it.

Sheveko

Just to flesh this out a bit:

2 is currently not in full time work, but with 1 & 3's income (£28,000 + £40,000 respectively) the mortgage provider was prepared to lend £333,100 based on an LTV of 68%.

The best interest rate we found, 2.74%, required a 30% deposit. So £75,000 for the £250,000 house we wanted to buy. Immediately we see that 1 & 2 are already contributing £5000 more deposit than they need to in order to get the best interest rate. They could invest that elsewhere and take on a larger mortgage, but they're not.

So here're some other scenarios:

Say 3 could match 1 & 2's £40,000 deposit. 1 & 2 would still be contributing £40,000 to what would then be a £120,000 deposit. Given that the best interest rate was already met at £75,000, 3's deposit wouldn't make any difference to them.

Say 3 could contribute 1/3 of a 30% deposit (i.e. £25,000) in order to get the best interest rate. That would mean 1 & 2 would only need to contribute £25,000 to the deposit and would therefore have £15,000 each to invest elsewhere. However they would also have larger monthly outgoings and given that 1 & 2 would like to lower their monthly outgoings they'd almost certainly still contribute a £40,000 deposit anyway. So, again, it wouldn't make any difference to them that 3 had contributed anything to the deposit.

And even if they did decide they could afford the larger monthly outgoings, and invest that £15,000 elsewhere, they would need a higher enough interest rate to offset against:
1. The initial 2-year fixed rate of 2.74% (and then 3.99% after that, unless we fix again after two years, on an unknown rate).
2. Their higher mortgage payment insurance
3. And tax (unless an ISA or some such)
4. They might also like to invest in something that they could get at very quickly in the event of negative equity.

If there's anything in there it's very little difference and it's easily offset by the fact that 3's level of income was key to getting the mortgage in the first place.

Sheveko

What the deal boils down to (financially at least) is that 3 brings a larger enough income to the table, in order to satisfy income requirements for a larger enough mortgage, and 1 & 2 bring a deposit to the table, for the best interest rate.

Ben27

I may be repeating something someone else has said (sorry if so!) but I'd simply split the mortgage into two parts...£40k that person C is solely responsible for and £130k where responsibility is split 3 ways.

Then person C is contributing exactly the same as A and B, only their contribution is costing more as it is finance and not capital, and when you come to selling up it's much simpler. Simply split the returns three ways and all pay off your own mortgages (33.3% 3 ways and 100% 1 way) and divvy up the rest or chip in what you owe in case of negative equity.

Also A and B still get the lower monthly outgoings they desire.

ViolaLass

Ben27 wrote: »

I may be repeating something someone else has said (sorry if so!) but I'd simply split the mortgage into two parts...£40k that person C is solely responsible for and £130k where responsibility is split 3 ways.

Then person C is contributing exactly the same as A and B, only their contribution is costing more as it is finance and not capital, and when you come to selling up it's much simpler. Simply split the returns three ways and all pay off your own mortgages (33.3% 3 ways and 100% 1 way) and divvy up the rest or chip in what you owe in case of negative equity.

Also A and B still get the lower monthly outgoings they desire.

That's precisely what the OP proposed, hence person C's mortgage is £40k higher than the other two's.