Buying to rent with unequal deposits and mortgage repayments

RoeJainer

Hello,

I am trying to wrap my head around a home ownership conundrum as it will be an unequal three way agreement which I want to ensure is completely fair to all parties

Person A - £20,000 deposit

Person B - £10,000 deposit

Person C - £10,000 deposit

Mortgage would be £160,000. Let us say for arguments sake that repayments are £600 per month. The mortgage is also split 50-25-25 as above so the repayments would be

Person A - £300

Person B - £150

Person C - £150

If the houses is rented out for £800 per month should the returns be split on the same percentages 50-25-25 or equally at 33-33-33? Or is there another percentage split that would be used? I feel like 50-25-25 just works out really unfairly for B & C, although they are at less risk if the property fails to get renters. 

Can I ask if it is common to have different mortgage shares when renting out a property like this or do people generally take equal shares?

There would be further complications (as A & B are a couple and likely to live in the property for at least a year, potentially with lodger D renting a room) but I feel my brain can only cope with one poser at a time.

Cheers,
Joe

MovingForwards

People do what works for them, when buying and doing unequal amounts they have a declaration of trust prepared to legally recognise what they agreed, in case of arguments / sale etc.

steampowered

To answer your question, yes of course A should get double the profits of B and C, given that A is putting in twice as much money.

Maintenance costs, service charges, letting agents fees and the like should also be split 50-25-25.

Arrangements like this are generally a recipe for disaster because:
- It would lead to higher rate stamp duty charges on future property purchases for A, B and C.
-  It isn't clear who has the legal responsibilities of being a landlord. A, B and C would all be jointly liable for any claims resulting from the tenancy. If A does all the work of dealing with the tenancy/letting agents A may resent not getting paid for that; and B or C may resent it if A makes a has of it.
- A, B and C will all be jointly liable for the entire mortgage, so are all liable to repay the entire mortgage if the other borrowers fail to do so for any reason. You can't have shares in a mortgage.
- The property can't be sold unless everyone agrees. There's a real issue if one owner wants or needs to sell but the others don't.

A, B and C will all be much better off putting their money into some other form of investment - either a smaller property they own themselves, or a tax efficient stocks & shares ISA which is likely to generate better returns anyway.