Equity Share - unequal deposits advice

F_T_Buyer

Me and my partner has discussed this at length, and we both think it's fair the deposits grow/shrink with the house value. E.g.

A 200k house, person A has 80k deposit, person B has 20k deposit. Mortgage 100k.

On day one, if it was sold the split would be 80% and 20% after all costs (hence the larger deposit loses out due to the costs).

On the very last day of the mortgage (25years?) it would be (80/2)+25%=65% person A, and person B (20/2)+25% = 35%

Deposits are after all purchase costs (e.g. solicitors/stamp duty etc), and the mortgage is paid equally.

You can knock this up in a spreadsheet, then speculate on the house value change - i.e. if it dropped 90% or went up 5000% like we've done.

Thrugelmir

F_T_Buyer wrote: »

Me and my partner has discussed this at length, and we both think it's fair the deposits grow/shrink with the house value. E.g.

A 200k house, person A has 80k deposit, person B has 20k deposit. Mortgage 100k.

On day one, if it was sold the split would be 80% and 20% after all costs (hence the larger deposit loses out due to the costs).

On the very last day of the mortgage (25years?) it would be (80/2)+25%=65% person A, and person B (20/2)+25% = 35%

Deposits are after all purchase costs (e.g. solicitors/stamp duty etc), and the mortgage is paid equally.

You can knock this up in a spreadsheet, then speculate on the house value change - i.e. if it dropped 90% or went up 5000% like we've done.

Works if you split the mortgage payments 50/50 for the entire 25 years. If one of you stops work to have children what then? What if one of you is made redundant? If there's real concern over the money now. Then your relationship may well not last the course. There's far more to life than money.

F_T_Buyer

Thrugelmir wrote: »

Works if you split the mortgage payments 50/50 for the entire 25 years. If one of you stops work to have children what then? What if one of you is made redundant? If there's real concern over the money now. Then your relationship may well not last the course. There's far more to life than money.

A bit harsh. I see a future with my partner, but this sort of thing needs agreeing from the outset it things don't work out. As you've asked, if we were to have children I would cover all of her share, and the same case if one of us couldn't pay. And yes we do plan to have children one day.

I think if you're buying a joint place you need to be able to talk about these things before, if you can't I would suggest that's not a great foundation to begin with!

Edit to add, it would be 50/50 if we were to get married too.

getmore4less

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?

That the wrong way to do it if you want proper equity splits.



something is wrong £281+£41 does not equal £315.

ownership/equity the split is
1. 50% of the mortgage + cash paid
2. 50% of the mortgage

what are the real numbers?
using
Mortgage: £281,000
Parent/my contribution: £41K approx
split is (140.5+41):(140.5) == 56.4:43.6

any maintenance repair etc should be done at that split NOT 50:50

when you come to liquidate you split the net proceeds BEFORE taking of the remaining mortgage debt and then pay of 50% each of that debt from your share

really simple and fair.

if cash flow allows you could own 50:50 and just have one of you take on a little more debt.
the mortgage would then be split rather than 140.5 each you split it 120:161

if at some point you want to overpay the mortgage then as long as you do it at the mortgage split it will work, if one wants to overpay more fiddling with the ownership will not be straight forward just change the debts owed is very easy.

that way if the person not putting in the deposit can afford the cashflow for a bigger share of the mortgage you own 50:50 and deal with their share of the debt to bring it down quicker.


.........................................................
you are trying to have your cake and eat it as they say,
you can protect the £41k OR you can have it buy equity

to try to do both is being a bit greedy.

getmore4less

F_T_Buyer wrote: »

Me and my partner has discussed this at length, and we both think it's fair the deposits grow/shrink with the house value. E.g.

A 200k house, person A has 80k deposit, person B has 20k deposit. Mortgage 100k.

On day one, if it was sold the split would be 80% and 20% after all costs (hence the larger deposit loses out due to the costs).

On the very last day of the mortgage (25years?) it would be (80/2)+25%=65% person A, and person B (20/2)+25% = 35%

Deposits are after all purchase costs (e.g. solicitors/stamp duty etc), and the mortgage is paid equally.

You can knock this up in a spreadsheet, then speculate on the house value change - i.e. if it dropped 90% or went up 5000% like we've done.

that is a very poor way to do it. what I have highlighted makes no sense at all, what happens 1/2 way through?

The simple easy fair way, if you were paying the mortgage 50:50 then you own 130:70 from day one to the end before the mortgage is paid then pay you outstanding mortgage from your share.


All purchase cost should be included in the starting equity and on disposal it is the net after costs before taking off the mortgage which you pay from your shares.

dazz66

Hi I would just like to add my tuppence worth based on my experiences based over the years.

It seems you are getting a lot of financial advise, varied and all valid but there are other angles, let me explain..

I brought my first house in 1991 with my then girlfriend, both saved for a deposit and both paid half the mortgage even after I was made redundant 4 months after moving in together. Unfortunately that relationship didn't work and I had to buy her out of the house for around £8k and I retained all equity and rights - she was happy with that even when she learned I made £30k profit in the sale two yrs later.

When I married my first wife she brought the flat we lived in from the council, cheaply and with a mortgage without my name on it, when we split she had hiked a 30% LTV mortgage up to 75% without my knowledge - not my debt - not my problem. Still once we split she made sure I had the 50% I was entitled to through marriage, I didn't want it all and accepted a lower offer, done finished.

Now I own three houses one of which was gifted to me by my mother, one that I brought whilst single and the house my wife and I live in with our three kids.

Now my portfolio may be worth a lot, I don't know exactly, it has mortgages that require satisfying and if the situation arose and I sold them there would be around £400k equity to share between me and my wife 50-50.

Now here is the rub, she wants nothing, not a bean, only for me to take care of the kids, that's a given. She doesn't believe she is entitled to anything because she contributed nowhere near as much as I did (she did contribute £45k when we brought the last house).

I pay all the bills, mortgage, tax, service, cars etc. she pays for the kids clothing and trips etc. as she has a part time job.

If the unlikely event of us splitting arose then I would honor my commitment to her and give her half of everything - no questions asked.

This is less about money and more about life and what you want to make of it. You can analyse everything every which way you want but in the end you get no where.

Life - all of it- is a risk.

You are asking the right questions without a doubt, but in my opinion for the wrong reasons - is this a business deal or are you making a life with someone you want to, in which case just get on with things and let the future take care of itself.

Investing in property is a far safer investment than most and can yield high returns but your asking people to assign percentages to your relationship not your business and if you start off like this then what will happen 5-10-15yrs down the road?

Only my opinion though, I'm sure others will think differently.

F_T_Buyer

getmore4less wrote: »

The simple easy fair way, if you were paying the mortgage 50:50 then you own 130:70 from day one to the end before the mortgage is paid then pay you outstanding mortgage from your share.

That's the same as what I'm saying. but it's not as simple as 130:70 (which is 65:35) you have to take into account changes in house value. What if you sell after 2 years and the house value has dropped? The outstanding mortgage doesn't drop, so the person who put the most money in should lose out more - same as if you had hyperinflation, the person who put in more should get more out.

There are different ways to do it, however what you do you should have this discussion before buying together.

getmore4less

F_T_Buyer wrote: »

That's the same as what I'm saying. but it's not as simple as 130:70 (which is 65:35) you have to take into account changes in house value. What if you sell after 2 years and the house value has dropped? The outstanding mortgage doesn't drop, so the person who put the most money in should lose out more - same as if you had hyperinflation, the person who put in more should get more out.

There are different ways to do it, however what you do you should have this discussion before buying together.

It is that simple and it takes account of all changes in value the key is the split is before the debt is paid.

Paying the debt does not change what you own

Your algorithm fails if the house rises in value the day you bought it.

The simple test is you borrow the money elsewhere or treat is as cash. Just because you borrowed on a mortgage should not be different to paying cash.

note3

We see about to be in identical situation. Me putting in approx £48k and partner £0.

We are drawing up agreement with solicitor that in the event of the property having equity I get the first £48k then any remaining is divided 50:50

getmore4less

note3 wrote: »

We see about to be in identical situation. Me putting in approx £48k and partner £0.

We are drawing up agreement with solicitor that in the event of the property having equity I get the first £48k then any remaining is divided 50:50

That is the equivalent of you lending the OH £24k on an interest free basis to buy the equity.

They do OK if the equity goes up but not so well if it goes down as they get less back but still owe you the £24k.

Make sure they are aware of this risk.


(Due to the costs of buying and selling they start out with a loss)