Deed of Trust: how to be fair!!! Help please

sinawill

My partner and I are buying a house together.

I am putting up 20% deposit and paying all the legal fees and stamp duty. We're both named on the deeds and will pay the mortgage repayments 50/50

We're not married and the deposit was a gift from family so we are looking at a Deed of Trust to make us tenants in common.

What do people think the fairest way to do this is?

Option 1: Split 60/40.
Option 2: Take deposit amount off the top, split the rest 50/50.
Option 3: Take deposit and fees amount off the top, split the rest 50/50.

(We'd revisit the legal work if we got married or had kids but for now want to make sure we're being fair to each other and protecting the value of the generous family gift).

We're also planning to make wills separately to help plan for worst case scenarios.

Would love some advice!

BitterAndTwisted

Obviously Options 2 and 3 are the most fair but that all depends on how happy you are with covering all of the fees etcetera as a gift to your partner.

sinawill

Thanks - when you put it like that, it's a pretty generous gift

Partner has some savings but we'd like to keep those for decorating, furniture etc. I'd be matching partner's surplus to do same.

Anyone had experience of this? Deposit (& fees) coming from one party, the rest split down the middle? What did you do?

grifferz

sinawill wrote: »

Anyone had experience of this? Deposit (& fees) coming from one party, the rest split down the middle? What did you do?

You can come to any arrangement you want, the most difficult thing will be deciding what to do in the event that you have to sell for less than what you bought it for. Example:

House purchase: £200,000
Conveyancing & stamp duty: £3,000
Deposit: £40,000
Mortgage: £160,000

You specify that on sale you want £43,000 back then remainder after mortgage will be split 50/50.

Sell for £180,000.
Agent's fees of £1,800.
Discharge mortgage leaving £18,200

Who gets that? Presumably you.

What about your loss of £18,157? Is it yours to bear entirely or does your partner now owe you half?

Bear in mind that if you decide that you will share the debts as well as the profits then how will you force your partner to settle that debt of £9k to you? They may have no assets at that time, and/or be uncooperative. Potentially you'd have to take them to court which would be costly etc.

My parter and I as unmarried FTB with dramatically different financial situations have just been through this and you have to think of the absolute worst cases, not just dream about how you will divide the potential profits!

ValHaller

BitterAndTwisted wrote: »

Obviously Options 2 and 3 are the most fair

To me Option 1 is obviously most fair (leaving aside fees etc), since you are putting in 20% and taking on half an 80% mortgage, making 60% and your partner is taking on the other half of the mortgage making 40%.

If you come to sell up, then (for calculation) split the proceeds 60:40 and each pay your half of the mortgage from your share of proceeds.

If the value of the property has reduced, then both of you will take a proportionate hit - however the one who has put no cash in will be left to find some more money to make up their mortgage losses. In actuality, the mortgage will have to be paid in full first - all of the remaining equity will go to the partner who put the equity in in the first place and the partner with no equity will have their losses covered by the party who put in all the equity - but will owe their mortgage shortfall to the other partner.

sinawill

What a minefield in the event of a loss on selling. Has anyone ever seen / been a party to something with various scenarios? eg

If selling at a profit, split as per clause (a)
If selling at a loss, split as per clause (b)

grifferz

sinawill wrote: »

If selling at a profit, split as per clause (a)
If selling at a loss, split as per clause (b)

I'm struggling to imagine a scenario in which that would be fair. Can you give an example situation where it would make sense and what the clauses might be then?

In a situation where one person is going to put up more initial funds than the other, the normal problem is that a loss was made so there's nothing to give them back regardless of what your agreement is. If a profit is made, you can argue that the one who put more in is entitled to more return due to their risk, but that is still only one formula required.

ValHaller

sinawill wrote: »

What a minefield in the event of a loss on selling. Has anyone ever seen / been a party to something with various scenarios? eg

If selling at a profit, split as per clause (a)
If selling at a loss, split as per clause (b)

The suggestion I gave, which is often made here

If you come to sell up, then (for calculation) split the proceeds according to respective shares of <mortgage plus initial equity> and each pay your share of the mortgage from your share of proceeds.

actually covers both a) and b) scenarios quite fairly.

jack900

grifferz wrote: »

You can come to any arrangement you want, the most difficult thing will be deciding what to do in the event that you have to sell for less than what you bought it for. Example:

House purchase: £200,000
Conveyancing & stamp duty: £3,000
Deposit: £40,000
Mortgage: £160,000

You specify that on sale you want £43,000 back then remainder after mortgage will be split 50/50.

Sell for £180,000.
Agent's fees of £1,800.
Discharge mortgage leaving £18,200

Who gets that? Presumably you.

What about your loss of £18,157? Is it yours to bear entirely or does your partner now owe you half?

Bear in mind that if you decide that you will share the debts as well as the profits then how will you force your partner to settle that debt of £9k to you? They may have no assets at that time, and/or be uncooperative. Potentially you'd have to take them to court which would be costly etc.

My parter and I as unmarried FTB with dramatically different financial situations have just been through this and you have to think of the absolute worst cases, not just dream about how you will divide the potential profits!

Just wondering as you have said you recently went through this whether your situation was in any way similar to mine? And if so, how you managed it. I created a new thread here to explain further!

Strapped

I'm with VH on this. Option 1 is a no-brainer to me.

NervousHomeowner

My partner and I are in a similar situation and have just had a deed of trust drawn up. I am providing the deposit (Roughly 35%) and have covered all the fees. However, he will be paying the mortgage for the next 3 years. As such, we have arranged the following:

A. In the event that we make a loss after sale/fees, any equity will go entirely to me. Any debts will be paid 50/50.

B. In the event that we break even after sale/fees, I will recoup my deposit.

C. In the event that we make a profit, my deposit will be returned to me in full and then any profit will be split 60/40 to him.