Joint mortgage but uneven capital split

pdrysdale

Hi,

I am considering going into a joint mortgage with a friend from work but the money we are both putting into the house is not equal.

I will be putting in around £100K Cash and my friend £10K Cash. We will both be borrowing 300K (combined) in the joint mortgage.

So i will have roughly 60% and my friend 40% of the capital share of the house.


We are probably going to buy somewhere for around £400K and rent a couple of rooms out. how do we deal with this uneven split when apportioning income and expenses?

A friend at work suggesting up a partnership where i loan him the difference (45K) and he pays interest on this but this could get tricky as the money is coming from my Dad. We could just split all income/expenses 60/40K but that could also have its downfalls.

Does anyone have a good way/model that would help solve this problem?

Also, do you think it's fair for him to pay a premium to me for taking on more of the risk and for owning more of the house? Maybe he could pay me a small amount of rent each week?

Thanks

Yasmin02

Hi

My first advice to you would be very careful in entering in such an agreement.

I talk from experience, you will have to get the agreement drawn up legally in the from of a trust deed to ensure that your deposit is protected and this will outliine how you will split the monies if you were to sell the house becuase you will have a larger share in the property. For example, have you thought about the future if one of you wants to pull out and the other does not? The trust deed which will be drawn up by your soliciotr shold have a clause in ther ewhich will enable you to 'force' the sale by going through the courts.

Best of luck and if you would like any furhter information please feel free to PM me.

KInd Regards

Yasmin

sarmia

A couple of years ago when my partner and I bought our first home as we were only 20 his father gave us £10,000 to help us get onto the ladder and pay for our deposit and solicitor fees. We spoke to the solicitor about the £10,000 as if we split up I want my partner to have the £10,000 back as it was originally from his father. Our solicitor had it writen in the transfer deeds that if the house was to be sold through a relationship split, my partner would get any equity up to £10,000 and then the remainder split between us.

How come you only would have 60% if you put in £100k and he have 40% if he only put in £10k, surely you would have a much higher stake.

Tiger_greeneyes

You'll need to speak to your solicitor and get a declaration of trust written up. It's quite common and should cost somewhere between £150 - £200. It's a small price to pay considering the potential problems that not having one could cause

Gorgeous_George

sarmia wrote: »

How come you only would have 60% if you put in £100k and he have 40% if he only put in £10k, surely you would have a much higher stake.

For a £400K house with a £300K mortgage, the OP would have put in £250K and his 'friend' £160K which is a 61/39 split (of the £410K total 'invested' in the property).

It is important to work out what happens if the property increases in value but it is possibly more important to work out what happens if it falls in value. What happens if you have to sell at £300K and all your capital has disappeared?



GG

pdrysdale

Thanks for the replies guys, some useful information.

However my main question was how to deal with any income/expenses relating to the house (rental income plus costs etc) as the split is not even.

Plus whether it's fair for him to pay me an amount for taking on more of the capital/risk of the property and how to do this? I personally do think it's fair but want it to be a fair amount/process.

We could either split all income/expenses 60/40 or set up a partnership where i loan him 45K and he pays me interest on that. OR does anyone else have any other ideas for this. I just want a fair way of dealing with it so we both feel happy.

Thanks

Gorgeous_George

You could look at matching your friend's £10K and investing the other £90K to provide an income. There are loads of houses available for £90K if you fancy BTL or you could consider an off-set mortgage, ISAs, shares.

If you decide to use the whole £100K, I'd suggest you divide all bills, except the mortgage, by the number of people in the house. Your lodgers then pay rent which you spilt 61/39 with your friend. You split the mortgage payments 61/39. Your friend may need to pay a little rent to account for the fact that (s)he owns less than half the house (maby 11% of the lodger's rent.

All in all, I prefer option 1 - much easier if you own equal shares.



GG

Romani_Ite_Domum

It's a 60/40 ownership split.
I would split the bills between the people in the house.
As you own a bigger share you get first dibs on the bedrooms.:D
Income from lodgers you share 60/40. Sorted :cool:

pdrysdale

GG - The 100K HAS to go into the purchase of the house and cannot be invested elsewhere.

Has anyone else any novel ideas? Someone suggested setting up a partnership where i in effect loan him 45K to make it 50/50. Then he pays me interest on that 45K. However loaning him the money could be tricky, maybe need loan agreements in place, etc..

mattbass

You have £100k, why do you need them? Can you go it alone on a smaller scale?

CB1979_2

have you actually sounded him out about this "loan", he may think you're trying to take the p*ss! would he be able to afford mortgage payments + this loan payment?

most places would loan that kind of money for about 6-7% so you could offer it at 4%, but what happens if after 1 year you both decide to sell? as he "owns" the other £45k (& therefore 50/50 split) would that then mean he's entitled to 50% of all the profit? yet only paid off £4k of the loan????

to me he's in a win/win situation, he gets 50/50 split of a £400k house for putting in £10k! lol

surely the ideal thing (assuming you & he can afford it) you just split the mortgage payments 50/50, after the sale of the house (assuming price rises) you get your £100k back, they get their £10k back and then you split any other profit after all costs taken out?