Tennants in Common / Deed of Trust

s_glover

Hi,
My partner and I are buying our first house. I am putting down 15% deposit (some of which is gifted from my parents) whereas he is contributing only to the fees etc.

We will both be paying an equal amount towards the mortgage, maintenance, insurance etc.

I'm just looking for some adivce as to the best way to protect the deposit (mine and my parents money). We obviously need to write a deed of trust but I'm not sure if this is best done as percentages (me 57.5% and him 42.5% if my calculations are correct) or whether we just need a clause saying the deposit will be returned in the event of house sale and then the rest split 50:50 (I'm happy splitting any profit with him 50:50). I'm aware negative equity is a possibility and want to ensure the deposit is protected if this happens but am not usre of the best way.

TIA

liam_h

Me and the OH were in the same position. We wrote it up so she would get back the deposit that she put in, then the remainder is split 50/50.

s_glover

Thanks Liam,

This seems the simplest way of doing it. In this case even if the house was in negative equity would the original deposit amount would be secure?

Also was you deed of trust this simple or did you have any othe clauses? e.g if you disagree on selling if you split or one party moves out?

I'm keen to protect my deposit, especially that which is being gifted by my parents but otherwise we are buying the house as an entirely joint venture and are in things together. From some of the things read on here some deeds of trust seem very OTT.

liam_h

Ours was a pretty simple one too be honest. Pretty much came down to if the house is sold for whatever reason, the OH gets her deposit back before the remainder of the sale is split 50/50.

I don't know how negative equity would affect the deposit. (Too be honest we don't have a mortgage, it was borrowed from family & they are included in the write up). An FA and/or solicitor would be best to speak to about that.

zzzLazyDaisy

s_glover wrote: »

I'm aware negative equity is a possibility and want to ensure the deposit is protected if this happens but am not usre of the best way.
TIA

If you go into negative equity - that is to say that the house sells for less than you paid for it - then the net proceeds of sale may not be enough to cover the money still owed to the lender, never mind the deposit. So while you can protect the deposit to a certain extent by making it a condition that the deposit is repaid first and then any profit is split 50/50, the only way to fully protect the deposit would be to agree that you would each contribute 50% of any shortfall to be repaid to the lender as a result of negative equity and/or your OH will reimburse you for some or all of any shortfall on the original deposit, should that happen.

s_glover

liam_h wrote: »

Ours was a pretty simple one too be honest. Pretty much came down to if the house is sold for whatever reason, the OH gets her deposit back before the remainder of the sale is split 50/50.

I don't know how negative equity would affect the deposit. (Too be honest we don't have a mortgage, it was borrowed from family & they are included in the write up). An FA and/or solicitor would be best to speak to about that.

I've contacted our solicitor about the best way to go about it so I'm sure she will be able to help when she ets back in touch next week.

zzzLazyDaisy

s_glover wrote: »

I'm not sure if this is best done as percentages (me 57.5% and him 42.5% if my calculations are correct)
TIA

If you do it this way, and you sell a couple of years later (say) then he gets 42% of all net proceeds of sale, which will include the original deposit. Is that what you want? Far better in my view to return the original deposit and then split any profit 50/50.

krlyr

I've done this recently with my OH. From reading on MSE we saw we had two ways to go about it - protect our deposits (both contributing but him more than me due to having more savings) or have it so the deposits are buying us a percentage of the house.
The latter is probably more fair to your OH, but may also benefit you if the house value goes up. If you were buying a house on your own you could not guarantee that you would get 100% of your deposit back if the house decreased in value - you are making an investment which may increase or decrease. Say you deposited £30k, something went really wrong down the line and you only ended up with £30k equity in the end, is it fair that your OH wouldn't get a penny? Or if there was only £20k equity, would he owe you £10k? He may not have contributed to the deposit but he would have been paying a mortgage on it. Personally I feel that it's fairer that if the house goes down in value, the deposit loses value proportionately.

G_M

zzzLazyDaisy wrote: »

If you go into negative equity - that is to say that the house sells for less than you paid for it - then the net proceeds of sale may not be enough to cover the money still owed to the lender

Bit pedantic - but that is not my understading of negative equity.

should read " the house sells for less than the outstanding amount owed on the mortgage". If the house sold for an amount greater than the mortgage but less than your original purchase price, you would still have (positive) equity in the house.

The latter part of your explanation says nearly the same thing, though you'd need to substitute the word "may" with "would".

OP - if you were in negative equity, you would have to pay off the mortgage on sale somehow - ie find savings between you/take out loans/whatever. Thus your partner may be stretched to also pay back the initial deposit.

zzzLazyDaisy

G_M wrote: »

should read " the house sells for less than the outstanding amount owed on the mortgage". If the house sold for an amount greater than the mortgage but less than your original purchase price, you would still have (positive) equity in the house.

Yes, you are right - I should have been clearer.

The reason I referred to negative equity in this situation was because OP is wanting to protect the deposit. Therefore both the mortgage and the deposit need to be repaid, before there is any positive equity for distribution. Therefore if they sell the house for less than they paid for it, they are immediately in negative equity as far as the deposit is concerned (insufficient funds to repay it in full) and depending on how much the value of the house has fallen, could wipe out the deposit and also be in negative equity with the lender (15% fall isn't unheard of)

Strapped

%s every time. You are investing in property. If you are concerned about losing your deposit, then don't buy a house.