First time buyer: Trust Declaration

henrygregory

Hi there,
I am a first time buyer with my girlfriend of 5 years. We are purchasing a shared ownership property.

I am waiting to be assigned a solicitor for our purchase an thought I would raise the question on here whilst waiting.

We have applied for a mortgage and will be using my significant deposit of £60k to help lower our monthly mortgage repayments. On top of this, I will be providing a further £10k for legal fees, carpets and any other fittings we require. Unfortunately, my girlfriend does not have any savings to offer towards the purchase, so I will be doing this all by myself.

In the solicitors hand book, it has a section called Trust Declaration where it says the legal title of the property must be held either as
As joint tenants
As tenants in common


Several friends and colleagues have warned me that I really should get some sort of deed drawn up to protect my significant outlay on this property.
Would the above set of options have any bearing on this?

Both my girlfriend and I have agreed that we will pay the mortgage repayment (and rent portion of our shared ownership property) 50/50 as well as all bills, but I am concerned that if ever anything did happen in the future, I could be left out of pocket as we had to take out the mortgage jointly to be able to get one on this property. Obviously, my large deposit and covering of all legal fees, furniture etc will inevitably mean that my partner will be paying a very favourable 50% towards everything, which would have been significantly higher if I had not used my life savings for the mortgage. Can the above options protect against this if we were to part in the future?

I would be very grateful of any thoughts, experiences and suggestions.

getmore4less

don't mix living in the house with buying it.

for buying there are two common ways to do it.

The proper way is equitable shares wher you take the total cost of purchase and asign shares to the bits you provide.

for cash + mortgage/rent 50:50 your share is your your cash+ 50% of mortgage, OH their cash and 50% of the mortgage.

for a SO property say £200k+£10k fees with £50k SO, your £70k cash and a £90k mortgage the equitable shares become
total cost £210k
£50k 23.81% SO
£70k 33.33% you
£0k 0.00% OH
£90k 42.86% mortgage ( 21.43% each)

You own 54.76% OH owns 21.43%
any maintenance or improvements you need to add 1/2 the SO portion to your shares to work out who pays what.

When you sell you get that much of the proceeds then pay of your share of the debt that is left.

If the OH can afford a higher cashflow they could buy more of the place by paying more of te mortgage.

the other comon way is the you get your money back first and split the rest 50:50, this would be the same as you lending the OH £35k on an interets free basis which you may be happy to do.

goodwithsaving

I personally wouldn't be buying a joint property if I had put everything in and my OH nothing at all.....however you are so let's move forward on that basis.

Definitely(!) get a deed of trust. It isn't unromantic etc etc, it's sensible and an insurance policy. As getmore4less listed, there are number of calculations and methods for working out what would happen to assets in the event of a split, the two most common methods they have provided. Take advice from your solicitor, they won't be able to tell you what to do, but they will be able to guide you.
There is no right or wrong way of doing it, it's what works best for you / both.

TBagpuss

Yes. Joint tenants means you both own the whole property, and if one of you dies, the property automatically belongs to the other. If you own as joint tenants, and later split up, the presumption is that you get 50% each.

Tenants in Common means that you each own a specific share of the property, and you would then typically also have a declaration of trust setting out what those shares are.

There are two common ways of doing it. One is to have a eclaration of trust that says you get £70k back if the house is sold, and the rest is split equally. This means you get no return on your money but has the advantage of being simple.

The other is that you work out what your £70K represents in terms of the value of the property - so if you are buying the part share of] the proeprty for £200K, your £70K represents 30% of the purchase price, so your declaration of trust could provide that you get a lump sum equal to 30% of the value at sale and the balance (if any) is split eqaully.

You can word this as you own 65% of the property (30% + 1/2 the remaining 70%) and would be responsible for paying 50% of the mortgage out of that, if the property is sold, and your partner owns 35% and is responsible for paying 50% pf the mortgage out of that, if you sell.

Of course you have joint liability for the mortgage and that would be the first thing to be paid, but you can set out in your declaration of trust that as between the two of you, you split the payment in that way.

Talk to your solicitor about the best way to do this. Be aware that if you are using a cheap conveyancer or one paid for by the lender you may well be charged extra to have a declaration f trust drawn up.

The transfer deed can specify that you own 65%, your partner 35% (or as appropriate) but it is best to have a more detailed deed of trust too, so there is a clear agreement about how the mortgage is dealt with (paying off the mortgage and then splitting the equity 65/35 would give a different outcome from splitting the gross sale price 65/35 and then each paying 50% of the mortgage, for instance, but either calculation could be used if you just have a deed saying you own 65/35)

henrygregory

TBagpuss wrote: »

Yes. Joint tenants means you both own the whole property, and if one of you dies, the property automatically belongs to the other. If you own as joint tenants, and later split up, the presumption is that you get 50% each.

Tenants in Common means that you each own a specific share of the property, and you would then typically also have a declaration of trust setting out what those shares are.

There are two common ways of doing it. One is to have a eclaration of trust that says you get £70k back if the house is sold, and the rest is split equally. This means you get no return on your money but has the advantage of being simple.

The other is that you work out what your £70K represents in terms of the value of the property - so if you are buying the part share of] the proeprty for £200K, your £70K represents 30% of the purchase price, so your declaration of trust could provide that you get a lump sum equal to 30% of the value at sale and the balance (if any) is split eqaully.

You can word this as you own 65% of the property (30% + 1/2 the remaining 70%) and would be responsible for paying 50% of the mortgage out of that, if the property is sold, and your partner owns 35% and is responsible for paying 50% pf the mortgage out of that, if you sell.

Of course you have joint liability for the mortgage and that would be the first thing to be paid, but you can set out in your declaration of trust that as between the two of you, you split the payment in that way.

Talk to your solicitor about the best way to do this. Be aware that if you are using a cheap conveyancer or one paid for by the lender you may well be charged extra to have a declaration f trust drawn up.

The transfer deed can specify that you own 65%, your partner 35% (or as appropriate) but it is best to have a more detailed deed of trust too, so there is a clear agreement about how the mortgage is dealt with (paying off the mortgage and then splitting the equity 65/35 would give a different outcome from splitting the gross sale price 65/35 and then each paying 50% of the mortgage, for instance, but either calculation could be used if you just have a deed saying you own 65/35)

Thanks for your detailed and very helpful reply. I think your second (more complicated option) would be best as it seems fairer.

I will go to our solicitor with this in mind and see if they will be able to include the deed in our buying transaction, hopefully including it in the price!

I suppose the only thing that may add more work is that if I passed away, I would like my share to go to my partner, which maybe defeats the object or tenants in common, but I want to protect our respective shares in the property mainly from relationship break down. It is a common issue these days, and with us being younger, you just don't know what the future would hold.

I guess the will is there to state where your share would go should you die, so should not complicate this process.

Thanks again for your help on this. I wonder if the solicitors will do the percentage calculations, or if I will need to provide them with this.

getmore4less

You can still be joint tenants for survivorship and have a trust deed that deals with the proceeds of any sale prior to a death.

just be sure they want you to have their share of the house as well.