First Time Buyers, Tennants in Common, Trust Deed advice....

gettingtheresometime

What happens if you both want to stay in the property post split?

What happens if your girl friend becomes pregnant and her earning power drops due to being on maternity leave, going pt for example? What if your earning power drops for what ever reason?

getmore4less

Adam182 wrote: »

Hmm I'm feeling lost at this stage.... I know you must be right, im just trying to understand how to make sense of it so i understand why.

My thinking was that because A can bring more money to the table than B it would be a good idea to use some of that extra money to put down a larger deposit and lower the LTV. This would be provided that the extra money was secure (in a deed of trust) and would be returned in the event of a split.

This would also benefit B in that they havn't used all their money on a deposit, and have the money in the bank to put towards their half of the 20k renovation costs over a period of time, or even use some for a holiday if one came about.

Doing it this way would (in my mind) mean that renovations can take place straight away as both A and B would have the money to fund their half of the costs.

If refurb was happening straight away I would include that renovation money in the purchase pot, remember you also need to include all the buying costs not just the purchase price. so in effect the deposits are £30k and £15k leaving £20k in cash to do the work(adding to each the share of the cash paid out in costs)

Doing it the other way and having both A and B splitting the deposit 12.5k each, would leave A with left over cash to renovations but leave B not much left for their half. In this scenario if A then went ahead and covered the renovation of 20k (lets say the money was taken and the renovation only took a day) and then a split occurred the next day it would mean B (if they wanted to) cold still demand their half regardless of A paying the extra 20k.

see above

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Using my figures before of A putting in a 20k deposit and B putting in 5k on a house sale of £153k and your figure of that equalling A owning 54.9% and B owning 45.1%.

that is based on the mortgage split 50:50

If then EVERYTHING is split at A pays 54.9% and B pays 45.1% of all expenses (mortgage/renovation) as tennants in common, does that work out fair?

you are slill clumping together renovation mortgage
The equity split would determine what ratio any new cash injections were at
the mortgage has already been set at 50:50.

Thanks again, its very much appreciated.

With your new numbers each keeping £10k aside we have

£30k and £15k deposits a mortgage of £128k total cost £173k.

if you share the mortgage 50:50

94:79 or 54.34% 45.66%
(changed a bit from the previous split that accounts for the extra £10k each )

or you could split the mortgage to make the equity 50:50.

£30k + £56.5k and 15k + £71.5k

now the mortgage is split 44.14% 55.86%

on a £128k mortgage @ 5% over 20y £844.74pm

the different spit changes £422.37pp to £372.87 & £471.87

if you want to overpay regularly then you decide the total and split it at those %.
for one off capital payment again split at those %.
the great thing with this is as long as you keep putting in at that % any debt remaining stays at the same %

if one want to make a overpayment it is easy to work out the new debt %(can do that another time)

Remember what ever you do with the debt the ownership does not change.

..........
If B is income rich but cash poor having them take on more of the debt is quite a good way to balance out the shares, they effectively borrow more money to cover their smaller deposit.

Some find it easier to picture if you think the debt is coming from two independent sources(bank of mum and dad) in the above to keep things equal B needs to borrow £15k more from somewhere.
as they pay back M&D you would not expect that to change what they own of the house, same when the debt is a mortgage.

Adam182

getmore4less wrote: »

With your new numbers each keeping £10k aside we have

£30k and £15k deposits a mortgage of £128k total cost £173k.

if you share the mortgage 50:50

94:79 or 54.34% 45.66%
(changed a bit from the previous split that accounts for the extra £10k each )

So the above would be what the equity would be set at A 54.34% B 45.66%

And the mortgage debt would then be 50/50

Im struggling to understand why we need to add the extra 10k each for renovation into the above initial deposit, wouldn't just splitting any of the renovation costs at A 54.34% B 45.66% achieve the same outcome? because A would own slightly more equity therefore pay that small percentage more.

or you could split the mortgage to make the equity 50:50.

£30k + £56.5k and 15k + £71.5k

now the mortgage is split 44.14% 55.86%

on a £128k mortgage @ 5% over 20y £844.74pm

the different spit changes £422.37pp to £372.87 & £471.87

if you want to overpay regularly then you decide the total and split it at those %.
for one off capital payment again split at those %.
the great thing with this is as long as you keep putting in at that % any debt remaining stays at the same %

if one want to make a overpayment it is easy to work out the new debt %(can do that another time)

Remember what ever you do with the debt the ownership does not change.

Using this method doesn't protect the initial deposit though does it? because upon a separation both A and B would get an equal split of the sale price.
..........
If B is income rich but cash poor having them take on more of the debt is quite a good way to balance out the shares, they effectively borrow more money to cover their smaller deposit.

Some find it easier to picture if you think the debt is coming from two independent sources(bank of mum and dad) in the above to keep things equal B needs to borrow £15k more from somewhere.
as they pay back M&D you would not expect that to change what they own of the house, same when the debt is a mortgage.

Thanks for all this help, its much appreciated - Adam

getmore4less

So the above would be what the equity would be set at A 54.34% B 45.66%

And the mortgage debt would then be 50/50

Im struggling to understand why we need to add the extra 10k each for renovation into the above initial deposit, wouldn't just splitting any of the renovation costs at A 54.34% B 45.66% achieve the same outcome? because A would own slightly more equity therefore pay that small percentage more.

You can do it either way(based on 50:50 mortgage),
Include the £10k each and work out the %equity
54.34% 45.66%
or
Don't include the £10k each work out the equity
54.9% 45.1%
and then split the £20k needed at those % £10980 £9020

Using this method doesn't protect the initial deposit though does it? because upon a separation both A and B would get an equal split of the sale price.

The deposits are protected

what happens is you split the proceeds 50:50 before taking off the debt, then pay off the share of the debt that's left.

......................
using the same example with the 10k included and adjusted debt.

split the mortgage to make the equity 50:50.

£30k + £56.5k and 15k + £71.5k

now the mortgage is split 44.14% 55.86%

on a £128k mortgage @ 5% over 20y £844.74pm

the different spit changes £422.37pp to £372.87 & £471.87

After 1 year the remaining mortgage is £124,176.

lets say the place is now worth £210k after selling costs(nice job on that refurb )

split the house £105k each
split the mortgage debt( 44.14% 55.86%)
£105,000 - £54811 = £50,189
£105,000 - £69365 = £35,635

Adam182

getmore4less wrote: »

You can do it either way(based on 50:50 mortgage),
Include the £10k each and work out the %equity
54.34% 45.66%
or
Don't include the £10k each work out the equity
54.9% 45.1%
and then split the £20k needed at those % £10980 £9020

Thankyou for sticking with me on this, im pretty sure how this works now.

Im just wondering how you went about working out each percentage of equity based on the deposit.

Using these figures would you be able to quickly run me through it (you might have already and it went over my head at the time)..

House price 153k
A deposits £20000
B deposits £5000

Mortgage will be 50/50.

Thankyou very much for all your time.

getmore4less

Adam182 wrote: »

Thankyou for sticking with me on this, im pretty sure how this works now.

Im just wondering how you went about working out each percentage of equity based on the deposit.

Using these figures would you be able to quickly run me through it (you might have already and it went over my head at the time)..

House price 153k
A deposits £20000
B deposits £5000

Mortgage will be 50/50.

Thankyou very much for all your time.

Deposits
A 20/153 = 13.07%
B 5/153 = 3.27%

mortgage
128/253 = 83.66%

Split mortgage 50:50 and add to deposits
A 13.07+41.83 = 54.9%
B 3.27+41.83 = 45.1%

You have to remember these are rounded to 2places so are a little out not enough to worry about
eg A. £84k 54.9% = £83,997

just to confuse a bit further a check is the difference in deposit
15/153 = 9.8% = 54.9%-45.1%

I think two of the issues some people have trouble getting to grips with are
Splitting equity before taking off the debt.
buying equity with debt is the same as buying with cash.

.......................
I think a good way to check if the algorithm works is to use bigger differences like A 50% B 0% deposit, share the mortgage.

ownership is clearly 75:25 but in your original proposal the maintenance was 50:50 does that feel right, try a 90% deposit if still not sure.