Tenants in Common agreement - buying with a friend

Lucyparts

Hi there

I’ve done some Googling but wondering if anybody can offer some help regarding a tenants in common / declaration of trust agreement.

For context, me and a friend are looking at buying a house in London together. We have uneven deposits: she has £50,000 and I have £25,000 so we’ll be going in with a 70/30 split.

Does anybody know how what options we have in terms of how to split the money should we decide to sell the house in the future? I initially suggested we both just take out our original deposit amount and split the rest but then she didn’t think that was fair as there’s no benefit for her putting more money in which makes sense.

Does the split make a difference in terms of the amount we pay towards stamp duty/solicitors fees/house repairs etc etc?

I know ultimately it’s for us to decide and agree what goes into the deed of trust but any help on the sort of options that are available or common in these situations would be useful.

Thank you!

Red-Squirrel_2

Generally a bad idea to buy a house with somebody you don't intend to live with forever.

Its already causing disagreements and you haven't even started yet!

Cheeky_Monkey

My advice is simple - don't do it! These scenarios very rarely end well.

You're starting off by disagreeing about the amount you would each receive if you sold it so that doesn't bode well for the future.

All sorts of things can, and very often do, go wrong with this arrangement. There are too many 'what ifs' to mention.

If you can't afford to buy on your own in London, I would suggest looking to buy somewhere cheaper.

sheepy21

First wouldn't the split be 67/33? So you're already doing yourself out of 3% of the house.
Second you already can't agree on how to split the equity, how on earth would you fare when it comes to selling? If one wants to sell and the other does, what happens? For what it's worth I agree with you that if you split the mortgage equally then after the deposit money that the equity would be split equally.
In a nutshell you would be nuts to do this! Buy something by yourself!

SDLT_Geek

You could look for posts by Tom99 on declarations of trusts. He explains very well how to structure things when there are unequal contributions of capital.

HampshireH

I would walk away.

What happens when one of you gets a partner, has a child, loses their job etc etc

Imagine if you signed something stating an unfair equity share but your friend becomes unemployed and you need to pay the full mortgage.

All possible scenerios which will lead to a falling out at a later date

Thrugelmir

Lucyparts wrote: »

I initially suggested we both just take out our original deposit amount and split the rest but then she didn’t think that was fair as there’s no benefit for her putting more money in which makes sense.

There'll be inequalities throughout the duration of your relationship. Wanting a benefit from the outset doesn't bode well. By buying a property together you should both benefit.

Smi1er

Depends on the value of the property you're buying and if you are splitting the rest 50/50.

If you are sliptting the mortgage and bills 50/50 then it's quite simple.

If you buy a £500K house then your friend will own 10% (£50K down), you will own 5% (£25K down) and you split what's left 50/50. 85% left so 42.5% each. So you own 47.5%, your friend 52.5%.

As others have said. Don't buy with a friend. Ever.

getmore4less

The easy bit is the cash split based on inputs.

The hard bit is the other stuff like the triggers for the split and any sale and stuff like can you have others come live with your or what happens when one of you dies.

why not go in 50:50 £25k each and 1/2 the mortgage then have deal on the side for 1/2 the extra £25k as loan to you that you pay back separately, or you take on more of the mortgage to cover the difference.

csgohan4

Money and friend should never mix


https://forums.moneysavingexpert.com/discussion/5848405/selling-when-one-party-doesnt-want-to

Tom99

[FONT=Verdana, sans-serif]Yes its very straightforward and there is no reason why you should not buy together just because you might one day sell up.[/FONT]

[FONT=Verdana, sans-serif]Since you have unequal deposits you need a two or three part formula rather than a straight %age split.[/FONT]

[FONT=Verdana, sans-serif]Lets assume you are paying a total of £200,000 incl all fees and Party A contributes £50,000, Party B £25,000 and £125,000 is the initial mortgage amount. Lets also assume you are going to pay the mortgage 50/50.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]So Party A has paid for 25% (50/200) up front and Party B 12.5% (25/200) up front.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]You will own the property as T in C and your DOT will say something like this:[/FONT]

[FONT=Verdana, sans-serif]On the sale of the property and after paying the sale costs and redeeming the mortgage the proceeds of sale shall be split as follows:[/FONT]

[FONT=Verdana, sans-serif]Party A – 25% of the gross sale price less costs of sale[/FONT]
[FONT=Verdana, sans-serif]Party B – 12.5% of the gross sale price less costs of sale[/FONT]
[FONT=Verdana, sans-serif]The remainder – Split 50%/50% between Party A and B[/FONT]

[FONT=Verdana, sans-serif]The above formula is dynamic and the exact %age of the net proceeds each party gets will vary over time as the house increases in value and the mortgage is paid off.[/FONT]

[FONT=Verdana, sans-serif]Eventually when the mortgage is paid off the house will be owned:[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]Party A – (50/200 + (125/2)/200) = 56.25%[/FONT]
[FONT=Verdana, sans-serif]Party B – (25/200 + (125/2)/200) = 43.75%[/FONT]