Equity entitlement when separating

Gnomi777

Dear MSE Forum members,

Could I please ask for some advice. Sorry, its a bit long...
My (now ex) partner and I bought a shared ownership house in January 2014.

I put in a significant deposit (gifted mainly from family).
He put in no deposit.
We are both on the mortgage and pay equal amounts per month.

I want to remain in the house (as our son is at the nearby school and my Mum lives around the corner), so need to pay him something from his contribution towards the mortgage.
I've seen varying explanations of what he should get, but nothing definitive, which seems ridiculous!

I've worked it out initially as the calculation below (names have been changed!), but would appreciate advice as to whether this is correct. The mortgage has another 30+ years to run.

Jane and Jim purchased a property for £180,000 as tenants in common (as not married). Jane invested £77,000 and Jim invested £0, so Jane owns 42% and Jim owns 0% at the outset. The mortgage repayments were paid equally per month.

After 3 years Jane and Jim break up. Jane wants to remain in the property. The original mortgage of £73,510 has reduced to £66,046 (£7,464 reduction).

Jim gets 0% of any potential increase in property value, as he put in 0% of the deposit. He gets 50% of the £7,464 mortgage repaid (£3,732).
Jane would be eligible to 42% of the increase in property value, if sold. She would get 50% of the £7,464 mortgage repaid (£3,732) and her original deposit of £77,000.

However, this didn't sit right with me, as there would be no incentive for 'Jim' to be on the mortgage if he wasn't going to get some of the equity. So:

£66,046 divided by 77,000 = 89% remaining capital to be repaid = 11% capital paid off.
Two house valuations have been given by estate agents:
1. £368,000
2. £400,000
Average of these is £384,000 divided by the 50% ownership which equals £192,000 currrent estimated value of half the property.
£192,000-£180,000 (original value) = £12,000 equity
11% of 12,000 = £1,320 equity
50% of £1,320 (as we've both paid off the capital) = £660 equity to him.

So: £660 equity +£3,732 capital = £4,392 owed to him.
Does that sound right?

Gnomi777

Just a thought. Instead of all the above, should he be getting 50% equity but only on the percentage remaining that I don't already own outright?

downhillfast

(Value of share of house) - (outstanding mortgage) = equity

((Equity) - (YOUR deposit)) / 2 = what you pay him.

?

getmore4less

Your starting point of zero deposit =zero equity is wrong if they pay 1/2 the mortgage that buys that share of the equity

Tom99

[FONT=Tahoma, sans-serif]Your initial £77,000 plus the initial mortgage of £73,510 comes to £150,510 so where did the rest of the £180,000 purchase price and fees come from?[/FONT]

getmore4less

back on a proper computer...

trimming to just do proper equitable shares.

Jane and Jim purchased a property for £180,000 as tenants in common (as not married). Jane invested £77,000 and Jim invested £0, so Jane owns 42% and Jim owns 0% at the outset. The mortgage repayments were paid equally per month.
.....
mortgage of £73,510 has reduced to £66,046
........

Two house valuations have been given by estate agents:
1. £368,000
2. £400,000
Average of these is £384,000

starting equity
you : £77k + 1/2 the mortgage
him : 1/2 the mortgage.

you 63.20%
him 20.42%
SE 16.38%

you each owe 1/2 the remaining mortgage(£33,023).

20.42% of the £384k less the mortgage is £45,390

that should be his starting point for negotiations.

if you go down the you get your deposit back route

deposits and the mortgage you own 83.62% less the mortgage that's £255K and some change, he is due 1/2 of that less the £77k = £89,000 (+change)

getmore4less

Tom99 wrote: »

[FONT=Tahoma, sans-serif]Your initial £77,000 plus the initial mortgage of £73,510 comes to £150,510 so where did the rest of the £180,000 purchase price and fees come from?[/FONT]

My (now ex) partner and I bought a shared ownership house in January 2014.

problem is OP does not understand how equity shares work

NinaSwiss

Gnomi777 wrote: »

Dear MSE Forum members,

Could I please ask for some advice. Sorry, its a bit long...
My (now ex) partner and I bought a shared ownership house in January 2014.

I put in a significant deposit (gifted mainly from family).
He put in no deposit.
We are both on the mortgage and pay equal amounts per month.

I want to remain in the house (as our son is at the nearby school and my Mum lives around the corner), so need to pay him something from his contribution towards the mortgage.
I've seen varying explanations of what he should get, but nothing definitive, which seems ridiculous!

I've worked it out initially as the calculation below (names have been changed!), but would appreciate advice as to whether this is correct. The mortgage has another 30+ years to run.

Jane and Jim purchased a property for £180,000 as tenants in common (as not married). Jane invested £77,000 and Jim invested £0, so Jane owns 42% and Jim owns 0% at the outset. The mortgage repayments were paid equally per month.

After 3 years Jane and Jim break up. Jane wants to remain in the property. The original mortgage of £73,510 has reduced to £66,046 (£7,464 reduction).

Jim gets 0% of any potential increase in property value, as he put in 0% of the deposit. He gets 50% of the £7,464 mortgage repaid (£3,732).
Jane would be eligible to 42% of the increase in property value, if sold. She would get 50% of the £7,464 mortgage repaid (£3,732) and her original deposit of £77,000.

However, this didn't sit right with me, as there would be no incentive for 'Jim' to be on the mortgage if he wasn't going to get some of the equity. So:

£66,046 divided by 77,000 = 89% remaining capital to be repaid = 11% capital paid off.
Two house valuations have been given by estate agents:
1. £368,000
2. £400,000
Average of these is £384,000 divided by the 50% ownership which equals £192,000 currrent estimated value of half the property.
£192,000-£180,000 (original value) = £12,000 equity
11% of 12,000 = £1,320 equity
50% of £1,320 (as we've both paid off the capital) = £660 equity to him.

So: £660 equity +£3,732 capital = £4,392 owed to him.
Does that sound right?

As stated above, you need to divide the equity on the purchased half once you have deducted your original contribution.

Equity = 192k (property value) - 66k (outstanding mortgage) = 126k
Then deduct your original contribution: 126k - 77k = 49k
Each of you then gets 24.5k each as you made equal contributions.
Therefore you'd owe him £24,500 (mostly due to the fact that the property has appreciated in value).

NinaSwiss

Other solution (takes growth on your contribution into account):

As stated above, you need to divide the equity on the purchased half once you have deducted your original contribution.

Equity = 192k (property value) - 66k (outstanding mortgage) = 126k


Deduct your original contribution: 126k - 80.64k (42% of 192)
= 45.36k (each of you then gets 22.68k each as you made equal contributions.

Therefore you'd owe him £22,680 (mostly due to the fact that the property has appreciated in value).

getmore4less

NinaSwiss wrote: »

As stated above, you need to divide the equity on the purchased half once you have deducted your original contribution.

Equity = 192k (property value) - 66k (outstanding mortgage) = 126k
Then deduct your original contribution: 126k - 77k = 49k
Each of you then gets 24.5k each as you made equal contributions.
Therefore you'd owe him £24,500 (mostly due to the fact that the property has appreciated in value).

According to the first post their share of the house is 83.xx% not 50%

Tom99

getmore4less wrote: »

According to the first post their share of the house is 83.xx% not 50%

[FONT=Tahoma, sans-serif]My understanding of the original post was that a 50% share in a property then worth £360,000 was purchased for £180,000.

[/FONT] [FONT=Tahoma, sans-serif]However who provided this £180,000 has not been explained, as the deposit of £77,000 plus the initial mortgage of £73,510 leave nearly £30,000 unaccounted for.[/FONT]