Joint tenants/tenants in common?

klou86

Hi all,
Im hoping for some help/clarification with my situation.

My partner and I are currently in the process of buying our first home together and we have got the nitty gritty paperwork and are undecided whether we should be joint tenants, tenants in common (equal shares), or tenants in common (unequal shares)?

About us:
My partner is turning his flat into a buy to let and is releasing equity from this property to put into our new home, separately to this he has also saved and so has a larger deposit.

I have a deposit and am a first time buyer.

We have agreed that we will have a deed of trust in place to protect his assets.

Moving forward we will be paying 50% of the mortgage each and 50% of renovation costs. So we don’t know how to have the deed of trust written up and which ‘tenants’ box to tick.

My partner feels that as he is putting in a larger amount, if we were to split he should take a larger proportion of any profit/equity, despite me having paid equal amounts of the mortgage and renovation costs.

However, I think it would be fairer to nominate the values we have both put into the property and any profit/equity we gain from this total onwards should be split equally. Particularly as my Dad will be carrying out the building work free of charge.
My partner can’t agree with me on this. He explains, if we were to put both our deposit amounts into bank accounts he would accrue more interest than I would. So with regards to the house he wants a larger return on his investment. However, I feel no value is placed on the weeks/months of work that my Dad will be inputting into our property which subsequently should increase the value of the property.

Any advise welcome.

00ec25

klou86 wrote: »

Any advise welcome.

don't live together, you are not ready for it.
Arguing over money is the biggest hurdle in any divorce/break up.

if you think your dad should be paid for his time then pay him in cash. Trying to use that as leverage over a difference in finances suggests you are going to be bitter unless you feel you have "won". Not a sound basis for a relationship.

meantime your BF is right. He is putting in (a lot) more than you and deserves to be exposed to more gain or more loss than do you with your smaller financial stake. It works both ways after all.

JoJo1978

Perhaps you need to put a pause on the house you are buying and resolve this issue before attempting to buy another together? The challenge isn't what to put on a form, but a larger one - you aren't aligned on the topic of money going into the biggest financial decision you'll probably make.

That said, imagine you were buying a house where no building work was required. In that scenario would you agree that your partner is putting in more so therefore should be due more back if you split and sell. He stands to lose more if you sell for a loss remember.

bowlhead99

Firstly I would forget joint tenants where you share it all jointly and if one of you dies the other gets everything. Tenants in common with un-equal shares via a deed of trust is the way to go if someone wants to protect their separate contributions.

There are all kinds of ways you can set up a deed of trust to protect someone's assets or give them an enhanced return on what they are putting in.

With made up numbers for example, say you have £25k and your partner has £100k and you will get a joint, equally paid £200k mortgage between you to buy a £325k place.

A simple method of how the house will be funded says you own 25/325ths deposit + 100/325ths by promising to pay the mortgage = 125/325ths. Partner owns 100/325ths deposit + 100/325ths via the mortgage = 200/325ths. That's how much you have each committed to the property so that's how you share the profits and losses. You could increase the 325 by whatever you spend on capital improvements/ renovations between you.

In that situation your partner's extra share is buying him an equity piece of the house, which does expose him to more gains or losses. If the place plummets in value from 325 to 200 there is only enough left after sale to pay off the mortgage and he's lost £75k more than you, which he might think was unfair unless you were going to let him have a lot more of the 'upside' if things go up. Likewise you want to feel like you have an half stake in the house so that you are committed to maintaining it and living in it as a couple, so you don't want him to have most of the upside.

So one thing to do is to treat his extra 75k deposit (the bit over and above what you put in) more like a sort of loan than equity. e.g.:

- If you sell for less than you paid for the house and the renovation, he gets that back in priority to both you and he getting your £25k 'normal' deposits out, subject to sufficient funds.

- Or if there is a surplus after paying the mortgage, he gets his £75k out first, together with an additional priority amount which is calculated on an interest rate from time to time which is equal to what you are saving as a couple in interest between you, by having a mortgage £75k lower than you'd have needed if he hadn't been willing to raid his savings and mortgage his other flat to put more money into the property.

E.g., sell for £400k in a few years' time, by which point you have each clearsed about £10k of mortgage principal leaving mortgage of £180k instead of £200k, there's maybe £220k of proceeds left: he gets the first £10k as notional interest (depending on the interest rate you agree), then he gets his £75k, then there's £135k left which you can split down the middle at £67.5k each. It would still be a 'great deal' for you, because you turned your £25k and £10k of mortgage principal repayments into £67.5k (about 93% return on your money) and he only turned his £100k and £10k of mortgage principal repayments into £152.5k (only 39% return on his money).

Remember if he didn't put the extra £75k (or whatever) in, you'd have a much higher interest rate (if you could even get a mortgage) because the loan-to-value rate would be much bigger. So the notional 'interest rate' that you both agree is to be given to him as a first call on profits after paying his capital back, could reasonably be a bigger rate than whatver short-term deal you've been able to get from the bank on the mortgage.

Every couple is different when it comes to what they think is 'fair'. He probably doesn't want to risk all his capital if you break up in a couple of years and sell up in the middle of a property crash. So maybe just preserving his capital to treat it more like loan than equity is a good way to go. And he presumably wants some return on the cash that could have otherwise been in his bank account or invested in the stock market or a pension or a BTL investment, otherwise that's a lot of money to commit into the relationship for free and give you half of all the profits. So some 'notional interest rate' as a first charge on profits could be fine.

You could balance that need for a decent interest rate with your need to get something out of your dad doing free work. You could look into what that might cost to have it done professionally and independently. When hammering out a financial agreement, everything is a bargaining chip.

Of course, just because everything in a financial agreement is a bargaining chip, it doesn't mean everything in a relationship is a bargaining chip. If you can't work it out so that one party isn't going to just store up resentment in the future, the whole 'buying a place together' is a nonstarter.

Really you feel you want to get half the profits if you are to be treated as an 'equal', but you also need to reward him for bringing a lot of cash into your property purchase so that he doesn't feel that he's putting all that money in for no financial reward. Because if he is spending a huge amount of his savings and taking money out of his BTL investment, for no financial reward while giving you a great upside potential on your own money, while only an 'emotional reward' of getting to live with you and make you happy, he's basically paying for your companionship. If you think about it for a moment there are a lot of ugly words which could be used for that definition.

For the sake of your emotions and sanity it is sensible to make sure both parties get a 'fair return' financially. Don't kid yourself that a bit of free DIY from your Dad is as much a factor in you getting the property as putting in a huge extra deposit without which no property could be bought. But without knowing the numbers or the extent of work your Dad will do, it's difficult for us to say.

If you were married then to an extent all bets are off as divorce lawyers get to say what happens. When you're not, you just have whatever legally-binding deeds of trust that you have signed. If you break up, emotions will get in the way so the time to agree everything is well before you go into it, and document the hell out of it, no matter how uncomfortable thath feels.

foxy-stoat

Make it really simple - forget about interest you may or may not earn from cash in bank as you are both buying a home together.

Deed of trust to protect each others initial cash deposit is reasonable - so no one will lose money if you split.

As you are both jointly and severally liable for 100% of the debt then 50/50 on everything else.

If he is pressing the issue about owning more (on the deed) then rent and tell him to put his money in the bank to earn his 1.55% interest if that is whats important to him.

xylophone

Are you absolutely sure that you want to commit to this when you are already in disagreement about money?

SophieP2000

You shouldn't be buying a house together then if your partner wants to protect himself should you both ever split. Surely that is ringing alarm bells???? It shows he isn't fully committed!


When you buy a house together, everything should be 50/50 in my opinion, regardless to whether someone put more of a deposit than the other!


My partner brought his house on his own, while we were together, I've always paid 50% of everything, and the deposit was mainly from my money, but my credit report wasn't the best at the time. However, we have now just sold the house which is technically his, and brought a house TOGETHER. He would NEVER consider putting anything in place saying he owned say 75% and I owned 25% , you just don't do that when you are a couple, that is absolutely absurd.


If I were you I would no way be buying a house with that guy and would be ending the relationship. And does your dad know he wants to do this, as surely he wouldn't agree to do any work for free if your partner was to gain more financially than you!


if he has issues, he should keep his extra money aside, and you both should put exactly the same deposit in, then there are no arguments. but he is ridiculous to do that.

Tom99

[FONT=Verdana, sans-serif]Tell your partner he can have his larger %age but your Dad will charge £300 per day as his fee.[/FONT]
[FONT=Verdana, sans-serif]Or add your Dad's notional fee to your deposit before comparing it to your partners larger deposit.[/FONT]

steampowered

klou86 wrote: »

My partner can!!!8217;t agree with me on this. He explains, if we were to put both our deposit amounts into bank accounts he would accrue more interest than I would. So with regards to the house he wants a larger return on his investment.

I agree with your partner.

Logically, there should be no difference between £100 paid to the deposit and £100 paid to the mortgage. To my mind both payments should get the person who is paying them an equal share of the property.

Why should you get a share of equity for your £100 but your partner shouldn't get a share of equity for his £100?

If the property is sold, I think the equity should be split according to how much each person has paid - taking into account what they paid towards the deposit and what they paid to the mortgage.

Whether you want to put a £-value on your dad's work is a more tricky question. I suppose you could estimate the £-cost of getting a builder to do the work, and add that £-amount to your share?

steampowered

SophieP2000 wrote: »

When you buy a house together, everything should be 50/50 in my opinion, regardless to whether someone put more of a deposit than the other!

If I put £90k into a property and my girlfriend puts in £10k, I don't really see why we should get £50k of equity each. Especially if we aren't married.

If the equity is split 50/50, that is basically just a cash gift of £40k from me to my girlfriend. I don't really see why I should give my girlfriend a cash gift of £40k.

I hope we don't split up - but I think that as adults we should recognise that we can't see into the future !!!

greendoor665

You shouldn't be buying a house together then if your partner wants to protect himself should you both ever split. Surely that is ringing alarm bells???? It shows he isn't fully committed!


When you buy a house together, everything should be 50/50 in my opinion, regardless to whether someone put more of a deposit than the other!

Disagree with this - I think it's the sensible thing to do. It's insurance that both will be treated fairly if they split up. Obviously no one plans or wants to split up but it's very common. I don't think that planning for that possibility means either party is not committed, just sensible and realistic. It might not feel very romantic but the emotion should be taken out of the equation.

If they stay together long term then it's a moot point. They will eventually share their assets as a couple so it won't matter who owns what, but they're not there yet.

You can read plenty of stories on this forum of how people have purchased property with partners, split up and then got into nightmareish situations.

I can potentially see myself buying a house in the future with my partner, who earns a similar amount to me but has not much saved up. If I provide most of the deposit there's no way I'm splitting everything 50-50 so that if we split up she walks away with half my cash.