Tenants in Common Advice

RJeff

Hello,
I am a first time buyer looking to buy a property with my partner.
We think a tenants in common agreement will be best for us as my partner has a 20,000 deposit, and I have a 5,000 deposit.


We are looking to get a declaration of trusts agreement drawn up so will be seeking legal advice. We have 2 ideas of agreements which will be fairest for the both of us, and I was just wondering whether I could possibly have your opinions on which of these 2 would be better for us to agree on.


The value of the property we like is 150,000.
Our monthly mortgage payments will be about 550, and bills we think will be roughly 200. (These are rough figures).


Idea 1. We get an agreement which says I pay the monthly mortgage payments until my deposit equals my partners deposit. So a 15,000 gap. This we have calculated will take roughly 22 months. And once my deposit equals my partners, we agree to have a 50/50 share in the property. I have calculated how much money I would have left over to spend on social/savings, afters bills, my monthly direct debits on phone, car etc., and it would be about £200, which I accept isn't much money left over. That is the only disadvantage with this agreement.
If we split up, before my deposit equals my partners, then my partner will get taken off my side of the equity left over when we sell the property.


Idea 2. Our deposits can be split 80/20. We agree to split mortgage payments/bills etc 50/50 so all that is equal. Then if we split up and sell the property, the equity is split, so we each get our deposits back and the outstanding equity is split 50/50 between us.


I would be grateful for your opinions on these 2 ideas, and for any suggestions on similar ideas that may be fairer for us.
I look forward to hearing from you. :A

saajan_12

You're thinking of it backwards.. Firsts decide how you want to split your finances to give you each enough spending money etc, and Then set the ownership % to reflect that.

Option 1 - what will partner do with their spare cash? If they are covering all your joint going out, holidays etc will that be fair? Also this doesn't account for the lost interest on partner's £15k over the two years, as you're putting in your money later.

Option 2 - What if the house price decreases when you sell? Where will partner get their £20k? What if house price increases? You'd get an equal share of the gain having only invested 5k at the start.

Personally, I'd go with option 3: split the monthly mortgage payments however you both agree/can afford to suit your lifestyle, income etc. Then look at each person's deposit + mortgage contribution as a % of the purchase price, to give their share.
If you split the mortgage 50/50: 25k deposit on 150k price means 125k mortgage = 83.3%, each of you servicing half ie 41.7%

Your share: 5k deposit + half mortgage = 3.3% + 83.3% / 2 = 45%
Partner's share: 20k deposit + half mortgage = 13.3% + 83.3% / 2 = 55%

So you split the monthly mortgage payments 50/50 and own 45/55% of the property. When you sell, you get 45%, partner gets 55% and you each pay off half the mortgage from your shares.

RJeff

saajan_12 wrote: »

You're thinking of it backwards.. Firsts decide how you want to split your finances to give you each enough spending money etc, and Then set the ownership % to reflect that.

Option 1 - what will partner do with their spare cash? If they are covering all your joint going out, holidays etc will that be fair? Also this doesn't account for the lost interest on partner's £15k over the two years, as you're putting in your money later.

Option 2 - What if the house price decreases when you sell? Where will partner get their £20k? What if house price increases? You'd get an equal share of the gain having only invested 5k at the start.

Personally, I'd go with option 3: split the monthly mortgage payments however you both agree/can afford to suit your lifestyle, income etc. Then look at each person's deposit + mortgage contribution as a % of the purchase price, to give their share.
If you split the mortgage 50/50: 25k deposit on 150k price means 125k mortgage = 83.3%, each of you servicing half ie 41.7%

Your share: 5k deposit + half mortgage = 3.3% + 83.3% / 2 = 45%
Partner's share: 20k deposit + half mortgage = 13.3% + 83.3% / 2 = 55%

So you split the monthly mortgage payments 50/50 and own 45/55% of the property. When you sell, the mortgage gets paid off in full and then split the rest 45%/55%.

I am not sure how you calculated your percentages, my maths isn't great but I like your idea. Seems fairer. What would happen if we were to split up though?

saajan_12

RJeff wrote: »

I am not sure how you calculated your percentages, my maths isn't great but I like your idea. Seems fairer. What would happen if we were to split up though?

My numbers are just taking your respective deposits / mortgage contributions as a percentage of the initial purchase price, 150k. So
- 5k deposit => 50000/150000=3.3%
- 20k deposit => 20000/150000=13.3%
- 125k mortgage => 125000/150000=83.3% or 41.7% each if you split the monthly payments 50/50

So your share is 3.3%+41.7% = 45%
Partner's share is 13.3%+41.7% = 55%

If you split, assume you'd sell the property? I'll correct my previous statement slightly, by saying you split the sale proceeds 45/55 and then pay off half the mortgage from your respective shares.

So say when you split, the house value is 200k and mortgage is 100k.
Your share is 45%x200k = 90k, you pay off half of mortgage 50k, leaving 40k for you.
Partner's share is 55%x200k = 110k, pays off half of mortgage 50k leaving 60k for partner.

RJeff

This agreement would be drafted at the time we are purchasing the property isn't it?

crystalpinks

We've recently had a deed of trust drawn up using your option 2. We felt this was fair for us as we'd both get our initial input back and split the rest whether it be debt/equity.
The solicitor said we could seek separate legal advice if we weren't sure, but we were happy to go ahead with this option.
We will likely split mortgage+bills+everything else 50/50 as our incomes are very similar

RJeff

crystalpinks wrote: »

We've recently had a deed of trust drawn up using your option 2. We felt this was fair for us as we'd both get our initial input back and split the rest whether it be debt/equity.
The solicitor said we could seek separate legal advice if we weren't sure, but we were happy to go ahead with this option.
We will likely split mortgage+bills+everything else 50/50 as our incomes are very similar

And if you were to split up (I hope you don't but for the sake of this) what would happen? You'd each get your deposits back then split the rest in half?

crystalpinks

Yes 50/50. Otherwise, although I'd be better off in the case of value rising, I'd be liable for more debt if value fell which didn't seem fair