Joint purchase

Energy_Saver_3

Can you help with the maths please? My son and a friend want to buy a flat together. For deposit, the friend has 60k and son has 20k. They have been advised to keep repayments on repayment mortage in same ratio of 75% for friend and 25% son giving the same ratio when they exit. My son may prefer to split the repayments 50/50 to give him more profit when they exit. Surely there must be a formula to enable exit share to be calculated for this or any other repayment split? Advice on the calcs would be appreciated plus advice on other clauses that should be included in Deed of Trust.

benood

This is actually quite simple. I'll assume that the property is being bought for £200k. The mortgage would be for £120,000 they are both paying half for this (£60k each) therefore the equity shares are: Your son (20+60)/200 friend (60+60)/200. I.e. your son owns 40% of equity and his friend owns 60%.

Can't help on deed of trust, however.

WishI'dReadSooner

benood
You're VERY incorrect on that simple formula.
Say for example they wanted to sell after 5 years of owning. Both have paid say 3,000p.a. making a total of £15,000 each in interest only mortgage payments.
House now worth £300,000 Repay both interest only mortgages so total amount to be split is £180K
Buyer 1, having put in in total £75,000 gets £108,000 a 25.82% return
Buyer 2 " " " " £35,000 gets £72,000 a 105.71% return

Fair? - I don't think so!

If both are going to live in the house it's also not quite fair on the person who provided the largest initial sum to pay 75% of the mortgage cost UNLESS they do this & after charging each other rent so they are both paying the same cost in rent & then the person with the largest equity share pays extra to top up his share.

Even if mortgage payments were split 50/50 a sum should be agreed on as a FAIR rental figure bearing in mind that 1 person has contributed 3 times the other.

Sorry Energy Saver if this isn't quite the answer you were expecting.

Hippychick

Get them both to speak to their solicitor, a trust deed can be drawn up where each party recoups their initial investment upon resale and the remaining equity is split 50/50, if your son wants to pay 1/2 the mortgage that would be the best option as his mate will also have the security of recouping his original investment.

WishI'dReadSooner

A fairer system would be - based on a cost of 200K
If house sells for 300K - a 50% increase
A gets 60K + 50% = 90K
B gets 20K + 50% = 30K
Repay the 120K mortgage - which was split 50/50 leaving an additional 60K to be split 50/50.
A gets 120K in total & B gets 60K in total

The above gives each a totally FAIR distribution. Any other way wouldn't.