Tenants in Common - unequal deposit and mortgage repayments

rachelcm_2

Hi there,

Me and my partner are buying a house together and need to draw up a Deed of Trust as tenants in common. We have very different deposit amounts and are therefore proposing that one of us pays all of the mortgage in order to increase their share in the property. The house price is £307,000 and we will be taking out a £90,000 mortgage.

We want some advice on whether anyone has drawn up a similar agreement and if it seems to make sense to draw it up this way.

Person 1) £184,200 deposit (60% of property value) + no mortgage repayments
Person 2) £32,800 deposit (10.68% of property value) + 100% of mortgage repayments

We think this means that the deed of trust should say that person 1) will receive 60% of the proceeds of the sale, while person 2) will receive 40% of the proceeds of the sale, minus the amount outstanding on the mortgage (which at present is £90,000).

Does this make sense?

Thanks!

getmore4less

That's the correct and FAIR way to do it.

just pretend the money comes from somewhere else like the bank of M&D and you paid cash just because the debt is secured does not change the agreement ownership.

Just remember that the maintenance and upgrades should be at the same %.
Is there going to be sufficient cashflow to do that if one is paying all the mortgage.

getmore4less

eggha wrote: »

yes it makes mathematical sense but is a bit unfair on two matters:

1. what happens if the house value decreases such that 40% will not cover the o/s mortgage? Person 2 loses all of their deposit and still has to repay the mortgage whilst person 1 gets to keep their deposit totally intact?
As ever what is fair is easy to work where prices rise, but less so where prices fall

Work for both rise and fall if you do it properly the 60% drops as well so they don't get all their money back
£200k house A=£120k B=£10k+£70kmortgage.
price drops to £100k
A=£60k B=40k but only £30k available so B owes A 30k that's how it works and is fair, A loses £60k B loses £40k

2. also seems unfair on person 2 since they will be the one paying all of the interest on the loan whilst person 1 gets 60% of the increase (or decrease) in value for "free". The lender will regard you as jointly and severally liable for the mortgage anyway so why not have person 1 pay 50% of the interest cost, that way they share the burden, but person 2 still has to pay all of the capital repayment so that they do end up buying the full 40% you want to end up with

although the debt will be joint the trust deed covers that, the fair way is you own the bit you provide the cash for be that real cash or servicing debt that produced cash.

If B had cash or borrowed the money of M&D and paid cash you would never thing that A should cover some of the agreed interest on the debt, making it a mortgage does not change that.

Pixie5740

rachelcm wrote: »

We want some advice on whether anyone has drawn up a similar agreement and if it seems to make sense to draw it up this way.

Yes, lots of people have similar agreements drawn up....

http://forums.moneysavingexpert.com/search.php?searchid=171700498

getmore4less

Pixie5740 wrote: »

Yes, lots of people have similar agreements drawn up....

http://forums.moneysavingexpert.com/search.php?searchid=171700498

using search result links does not work.

gettingtheresometime

Why don't you say person 1 gets the first £151,800 (if my mental maths is right ) of any equity then split everything 50: 50?

itchyfeet123

Would it be more straightforward to divide the equity than the house value, and update it yearly (or write in an automatic update)?

Eg: time 0, A has 85% of the equity and B 15% (184200/(184200+32800)=85).
After 1 year, B has paid an additional 10k on the mortgage. So now 184/(184+42)=81%.
After 2 years, 184/(184+52)=78. And so on, until year X, when 184/(184+122)=60%.

You could quibble about 100% of the mortgage payments being counted as equity and adjust accordingly, but my view is that if A doesn't want to pay any mortgage interest then the house can't cost more than £220k.

[Deleted User]

Have you thought about what happens to the agreement if person 2 becomes ill, loses job and can't get another one, or there is a pregnancy/child (no idea if this is possible in your relationship lol)?

getmore4less

gettingtheresometime wrote: »

Why don't you say person 1 gets the first £151,800 (if my mental maths is right ) of any equity then split everything 50: 50?

You could do but that is not equitable or fair.

getmore4less

itchyfeet123 wrote: »

Would it be more straightforward to divide the equity than the house value, and update it yearly (or write in an automatic update)?

Eg: time 0, A has 85% of the equity and B 15% (184200/(184200+32800)=85).
After 1 year, B has paid an additional 10k on the mortgage. So now 184/(184+42)=81%.
After 2 years, 184/(184+52)=78. And so on, until year X, when 184/(184+122)=60%.

You could quibble about 100% of the mortgage payments being counted as equity and adjust accordingly, but my view is that if A doesn't want to pay any mortgage interest then the house can't cost more than £220k.

Fiscally there is no argument, if you service the debt you own what you bought with that debt. anything less and you are getting done.

any algorithm needs to work for all numbers.

consider

A puts a £1 down B pay the interest only mortgage, by your algorithm...
A owns 100% B never owns anything clearly not right.

gettingtheresometime

getmore4less wrote: »

You could do but that is not equitable or fair.

Not even if the mortgage payments were 50:50?