Tenants in common (unequal deposit)

van00halen

I recently bought a flat with a friend of mine and wanted to get a second opinion on the strategy we plan to use in order to split things fairly. Here's the situation:

Property value 210k
Deposit (friend) 105k
Deposit (me) 10k
Mortgage required 95k

I plan to repay the whole mortgage solely. Initially my friend owns 50%, I own 4.7% and the mortgage debt makes up the remaining 45.3%. As I repay the mortgage my stake will increase until eventually at the end of the mortgage term we both own 50% of the property.

If at any stage we decide to sell, we would split any equity gain based on the relative proportion we each own at that timepoint. Does this seem a reasonable and fair strategy?

questionss

As I see it - if the mortgage debt is taken on solely by you then you both own 50% it just happens that you borrowed the money to buy your half.

On selling the gross amount received should have legal fees etc paid out and then be split 50:50 between you and your friend. Your friend keeps his half & your half should then be used to repay the mortgage with the remainder going to you.

This will be complicated by the fact that as a co-owner your friend is likely to be named on the mortgage. Thus if there is a shortfall rather than an increase in value then he will be liable for it from his half of the proceeds.

getmore4less

As above your debt your equity.

There is a risk element for the larger deposit that is hard to quantify.

Annisele

Will you both be living in the property?

If yes, then I'd say you both own 50% from the outset.

If no, then my answer would depend on whether any rent was changing hands.

van00halen

We lived together for 12 months then he moved out. He rents out his room and I continue paying the mortgage.

Annisele

Oh - so you've already bought the property? That complicates things a little.

Are you tenants in common or joint tenants? And if tenants in common, what percentage do you each own?

If you've already got a Deed of Trust, then you both get whatever you agreed then. If you don't, and if you own as anything than tenants in common with unequal shares, then a court would start from the assumption you owned half each.

If he keeps the rent from his room, and you pay the whole of the mortgage, then I think the fairest way is to say you both own half the house, but you have to repay the mortgage out of your half.

So, assuming a mortgage of £100k and a sale price of £300k, he'd get £150k (half the sale price), and you'd end up with £50k (your half of the sale price, less the mortgage amount).

Assuming a mortgage of £100k and a sale price of £150k, he'd get £75k (half the sale price) and you'd have to find another £25k from somewhere else to make sure the lender got its money back.

van00halen

We entered into this venture with a view to splitting everything 50:50. And indeed all fees including furnishing and bills are split this way. No deed of trust (yet!). But we can soon sort that out. I think I'm now convinced that any equity gains have to be split 50:50 also. Thanks for comments