Buying with a sibling

jkl2107

I need some help! I am buying a property with my sibling. Basically the split is we have both put in 25k deposit however my sibling will be paying 80% of the mortgage as they will be living in the property and I am paying 20% of the mortgage.

I need advice on this: when the time comes to sell, what should the split be if we both put up the same initial investment? Its a £200,000 property so work on the basis it sells for say £220,000 (a 10% profit) to make it easy and a round number.

Have sought solicitors advice and am awaiting return on that but just interested to hear people's views on this for another viewpoint!

Many Thanks

nb73

Problematic.

Could you structure it so that you both pay 50% of the mortgage, but your sibling also pays you rent on your share?

jkl2107

We did think about just splitting the mortgage 50/50 however, my sibling earns a lot more than I earn as I am still a student with a part-time job (soon to join the real world!) so the 20% is all I can afford. It is making for very difficult calculating though!

nb73

OK how about this. Say the house cost £100k.

You buy 25% of it, sibling buys 25% of it, bank owns 50% of it.

Your sibling who lives there gets to slowly buy the banks share over time by paying 100% of the mortgage.

When time comes to sell, you get 25% of the proceeds and your sibling and the bank together split the other 75%. Exactly how they split it depends on how much mortgage has been repaid and need not concern you?

marksoton

jkl2107 wrote: »

Its a £200,000 property so work on the basis it sells for say £220,000 (a 10% profit) to make it easy and a round number.

jkl2107 wrote: »

as I am still a student with a part-time job (soon to join the real world!) so the 20% is all I can afford. !

There's nothing to say either of you will make any profit. It may be a loss.

Are you in a position to take that hit given your circumstance?

jkl2107

Yes my position is fine within the whole scenario and that has all been investigated and every outcome looked at. However, the money (which was given to us in a will) is much better off invested in property, particularly in the area we are buying where the house prices are rising and will continue to do so with certain transport links, than sat in an account making a very small amount of interest. So property is definitely the way to go. I will be earning a salary come September albeit a small one to begin with due to the sector I'm entering into hence why the mortgage is being split the way it currently is. Also, I want to pay some of the mortgage (which I can afford to do) at least to ensure I will get a higher split of the (potential) profit so why not pay what I can afford. I just merely was interested in what people's views of what that eventual split should be as there does not seem to be a clear cut answer anywhere, I imagine due to so many people's circumstances being different.

jkl2107

Plus, even if we did make a loss, we have to have some kind of contractual agreement over what the split will be in the circumstance of a profit.

nb73

I see you gave the purchase price as £200000, so you are each buying 12.5% and the bank will own 75%

If neither of you were living in it, then on sale it would seem fair to start with both of you being paid out 12.5% of the sale price. To reflect the capital you introduced at the beginning.

But... you will have been slowly buying the bank's 75%, in different proportions. If this was a pure investment property, and you were paying mortgage in ratio 80:20 then you'd probably look to split this element 80:20.

But... it is also going to be home for your sibling. Which is why it gets problematic. How do you propose to deal with the imputed rent?

nb73

I don't make a habit of quoting myself, but thinking about this again:

nb73 wrote: »

Could you structure it so that you both pay 50% of the mortgage, but your sibling also pays you rent on your share?

If your sibling paid you 50% of a fair market rent, could you use that to boost your mortgage payments to 50%?

You'd then each pay 50% of the mortgage and your ownership would remain 50:50

AdrianC

The split should be whatever two grown adults decide is fair when they sit down and discuss it sensibly.

If you can't do that, then the whole thing is an atrocious idea.

jkl2107

I think I'm going to go away and look at the idea of rent as it hasn't been looked at in too much depth - due to it being siblings. Thank you for your advice, I will be following this up!