Equity Share - unequal deposits advice

PipS

Hi,

My partner and I are buying a house together, we will be tenants in common and I'd like to sense check I've got the following correct. Between my Dad and I we are putting in approx £41K towards the purchase (this also covers stamp duty, fees and some white goods agreed to buy from sellers as a seperate negotiation). My partner is putting in £0 towards to property purchase or any of the above. The mortgage payments, all bills, improvements etc will be split 50:50.

Purchase price £312,900 (plus additional £2,100 seperate sale of goods = £315,000 total)
Mortgage: £281,000
Parent/ my contribution: £41K approx

Would this make our equity shares roughly 63% and 37%?

We will have a Trust Deed drawn up which would dictate upon a sale the cc. £41K be deducted and returned to me before splitting the remaining proceeds 63/37 % from which we would then pay 50:50 to repay the mortgage debt. I believe this is most fair and also protects the cc.£41K should it sell for a loss?

Or is there a better way to do this?

Oakdene

PipS wrote: »

Hi,

My partner and I are buying a house together, we will be tenants in common and I'd like to sense check I've got the following correct. Between my Dad and I we are putting in approx £41K towards the purchase (this also covers stamp duty, fees and some white goods agreed to buy from sellers as a seperate negotiation). My partner is putting in £0 towards to property purchase or any of the above. The mortgage payments, all bills, improvements etc will be split 50:50.

Purchase price £312,900 (plus additional £2,100 seperate sale of goods = £315,000 total)
Mortgage: £281,000
Parent/ my contribution: £41K approx

Would this make our equity shares roughly 63% and 37%?

We will have a Trust Deed drawn up which would dictate upon a sale the cc. £41K be deducted and returned to me before splitting the remaining proceeds 63/37 % from which we would then pay 50:50 to repay the mortgage debt. I believe this is most fair and also protects the cc.£41K should it sell for a loss?

Or is there a better way to do this?

Would the split still exist after your £41k has been taken off bearing in mind that you have stated that all mortgage payments etc will be 50:50? I would have thought the 63:37% split would only happen if you didnt deduct the £41k from proceeds after the mortgage has been settled.

aneary

What if the price of the house goes down?

Work out what the 41k is in terms of equity, you get that percentage of equity back then you split the remaining equity 50:50.

andrewjb3

Seems unequal to me... If you split after the mortgage has been paid off (and you've been paying it equally..) you expect to get two thirds of the propery value? I wouldn't agree to that..

I'd have expected, upon sale, you get 41k, Then you pay off the remaining morgage. Then you split the excess (which might be negative!) 50;50.


But there are lots of ways you could claim is 'fair' !

PipS

Sorry your all right, I'm confusing myself! So upon a sale the cc.£41k would come back to me first, the remaining equity then split 50:50 from which we would pay the outstanding debt left on the mortgage 50:50. In the event of a loss it may mean I have to take some equity from my deposit to cover my half of the shortfall and my partner would need to fund his half.

Is that fair and correct? I want to keep it as simple as possible really.

EmmyLou30

You seem to being having your cake and eating it....twice! You get an agreement drawn up by your solicitor to say you get £41k back, then the rest 50:50. You could argue you're due some sort of uplift % wise of your £41k over however many years it is but that's getting a bit messy to be honest and probably not worth it.

aneary

I would look at your share as an approx 13% of the property value.

Then you take the 13% of the value of the property and the rest is then split equally.

10 years down the line £41k may not be much but the 13% would be.

Oakdene

I would think the mortgage would get settled first, deduct fees (estate agents & legal) then your £41k then any remaining equity before splitting the balance 50:50.

alex_163163

Like many people have said above (and is exactly what my boyfriend and I have set up this week but different figures) - if you sell you pay off the mortgage, pay any fees, you get your £41k back, then split any remaining equity 50:50.

saajan_12

PipS wrote: »

Purchase price £315,000 total
Mortgage: £281,000
Parent/ my contribution: £41K approx

Would this make our equity shares roughly 63% and 37%?

We will have a Trust Deed drawn up which would dictate upon a sale the cc. £41K be deducted and returned to me before splitting the remaining proceeds 63/37 % from which we would then pay 50:50 to repay the mortgage debt.

No! The unequal percentages already account for your additional 41k investment so you don't then need to get the first £41k as well. Just think assuming no increase and you split up soon so no mortgage paid off, you're suggesting you get 41k, then 63% of the remainder = 177k and pay half the mortgage 141k so you walk away with 78k.. parnter gets 37% of the remainder = 104k and pays half the mortgage 141k, resulting in a 37k loss.. so youre 114k better off despite only putting in 41k more??

PipS wrote: »

Sorry your all right, I'm confusing myself! So upon a sale the cc.£41k would come back to me first, the remaining equity then split 50:50 from which we would pay the outstanding debt left on the mortgage 50:50.

You could do this, would mean your 41k stays constant (assuming there is atleast 41k equity in the property when you sell.. if not your share would have to reduce to pay off the mortgage and possibly be repaid by partner if / when they can). However your 41k share doesn't benefit (/lose) from any house price increase (/decrease). Think of it as earning 0% interest.



Personally, I'd look at the % contributions (note your deposit + mortgage total 322k so check and adjust the numbers)
Partner's contribution: half mortgage = 0.5*87% = 43.5%
Your contribution: 13% deposit + 43.5% half mortgage = 56.5%

You split mortgage monthly payments / paying off the balance equally, and then get back 65.5% / 43.5% of the sale proceeds. Effectively you're getting back 13% and splitting the rest of the equity. This way, the 41k will grow / shrink with the house value (and with inflation over a long period) so its a true investment.

00ec25

as sajaan says the fairest way, since you are putting up the money to enable the purchase, is you own a larger share of the property

the money you paid in is therefore exposed in full to all increase or decrease in the house value. You take the risk of a losing some of your stake, but you also take the benefit of all of the gain on that stake

the alternative whereby you get back 41k and 50% of whatever remains means your cash is frozen at today's value of 41k. Effectively you would lose out and so that is unfair on you if the property goes up and unfair on him if it goes down since you take 41k of the proceeds before the residual is split.

by far the fairest method is to have unequal actual ownership - excluding what you paid to buy the white goods as they are nothing to do with the property purchase itself. It is unclear if the 41k includes the 2.1k white goods? if it does then your ownership share would be (41 - 2.1) = 38.9 + (281/2) = 179.4/312.9 = 57.3%. His share is then 42.7%