Uneven deposit and equal mortgage repayments

Bentil2019

My partner and I are looking to buy a house.
For arguments sake the house is 250,000
I am putting in 2,500 (1%)
He is putting in 22,500 (9%)
We will have a 90% mortgage worth 225,000 which will be split 50/50 in repayments.

I believe this will make the house 46% mine (45% of the mortgage plus 1%) and 56% his. Question 1 - Is this thought process correct?

Question 2, what happens if we break up and the house is now valued £260,000 so it has gone up by £10,000 - if he wanted to pay me out to buy the house completely, would he owe me my £2500 deposit and then 46% of the value of £10,000 = £7,100? This is my opinion.
He thinks that if the house has gone up by 10,000(4%) then so would my deposit (=£2600) and then 4% on whatever mortgage repayments i had paid. I don't think this is fair because I have been paying 50% deposits for what...

Understandably he wants to protect his deposit but I too want to make sure I am getting a fair share after putting in a deposit and 50/50 mortgage repayments. We are looking to speak to a solicitor but I believe we need to sort this deed of trust ourselves. We are open to discussion but dont know what is right or wrong.

Doozergirl

Way back in the distant past, before he was my husband, my other half and I agreed that we would both get back exactly what we put in as a deposit, and beyond that it would be 50/50.

Which makes sense for you, as that it what is happening.

Bentil2019

This is what my parents also said to me.
Should we split and the house is worth more, he wants a bigger share of that growth.

cybervic

I have the exact question when buying property last year. My solicitor said most deeds of trusts (in the case of OP & mine) nowadays set out what each party will get back on the sale of the property as fixed percentages because most people see deposit as an initial investment that should see some growth with the relevant house.

So in the event of him buying you out, the amount will be:
(Your Deposit + mortgage repayment you've made) x percentage of property increase/decreased

Your first calculation of "46% of the value of £10,000 = £7,100" is only right when your mortgage are cleared, if not then part of that growth is owned by your mortgage provider.

Your partner's share of the growth will then increase after buying you out because he will then take on what was originally your part of mortgage.

Tom99

You need a deed of trust with a two part formula, you cannot jump straight to a fixed percentage 40/50, 90/10 or whatever.
Since your partner is buying 8% of the house upfront more than you, but apart from that you are splitting the costs 50/50, then the deed of trust could say:

'[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 – 8% 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 will work whether you sell on day 2, after 5yrs or when you have paid of the mortgage. When working out the initial deposit contributions use the full costs of purchase including all fees etc not just the basic price.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]If you were to sell at £260k then using the above formula you will get £7,100 as you expected.
[/FONT]

gettingtheresometime

There was a thread on here very recently where the OP had put in a larger deposit than her partner & despite drawing up a declaration of trust faced losing thousands because of the wording.

Tom99

gettingtheresometime wrote: »

There was a thread on here very recently where the OP had put in a larger deposit than her partner & despite drawing up a declaration of trust faced losing thousands because of the wording.

Yes that was because despite unequal deposits the deed of trust had a straight split of the net sale proceeds rather than the two part formula I suggested above.
So if in the OP's case the DOT just said net proceeds split 46%/54% and the property was sold on day 2 the OP would (ignoring costs) get back £11,500 even though they had only contributed £2,500 the day before.

maisie_cat

I understand where he's coming from, you are essentially buying "shares" and his "share" should earn something if the price increases. So if the house increases to say £300k you own 46% (138k) and him 54% (162k) From your share you would each pay back half the mortgage and your "share" of legals etc.
An alternative would be to even up the share by you paying a larger proportion of the mortgage or a greater deposit.
You will need a deed of trust that lays out the scenario otherwise your deposits will earn nothing from increases and you will share equally.
When we bought 92% of the deposit was mine and 8% his and I was careful to ensure that my equity was covered.

boo_star

If you're arguing over petty crap like that, perhaps you shouldn't buy a property together.

Bentil2019

Tom99 wrote: »

[FONT=Verdana, sans-serif]When working out the initial deposit contributions use the full costs of purchase including all fees etc not just the basic price.[/FONT]

Thank you Tom99

Your maths make the most sense and I think this is what we proceed with.
Question- why do we need to include the buying fees? We were going to split these 50/50.

Bentil2019

boo_star wrote: »

If you're arguing over petty crap like that, perhaps you shouldn't buy a property together.

Rest assured there is no arguing, just a mature conversation on how to protect each others assets fairly and accurately should the worst happen.