Buying a House with Partner Advice

denisekingston

Hi,

My partner and I have been together for three years and I like us to buy a house and live together some day soon. 

I will be a first time buyer, he already owns another property. Say we want to get a £600K property, he can pay 75% £450K by cash, and I will stump up the remaining 25% £150K. Is it simply just me getting a mortgage of £150K by myself (my salary is £50K pre-tax) - whilst the house is in both of our name with equity based on that percentage share? 

Any advise on the best way to get around this will be much appreciated. 

seradane

There's quite a few options here, and it helps to work thorugh various scenarios, e.g. should you have to sell in 1 year, 10 years or 25 years... 

Options for splitting it include:

1. Pure 75/25% split
2. Deduct original deposit contributed, then the remaining equity is 100% to you as you're the only one paying it off
3. Deduct original deposit contributed, then split the remaining equity by some percentage (let's say 75%/25% in favour of you)
4. Deduct value contributed (he gets 450k, you get up to 150k), equity split 50/50

You don't say what (if any) deposit you are contributing, so I will assume none. I also assume he won't contribute anything to the mortgage, that's all you. You might want to tweak these numbers if either of those assumptions are wrong.

So in Year 1, ok so nobody's choosing to sell now, but say you've had some crisis and need to sell for whatever reason. You've paid maybe 5k off the mortgage, house is same price, so equity is £455k.
Option 1 your partner will get £341k back, you'll get £114k.
Option 2 your partner will get £450k back, you'll get £5k.
Option 3 your partner will get £451.25k back, you'll get £3.75k
Option 4 partner = £450k, you £5k

Now let's look at Year 10. Let's say you've paid 50k off the mortgage, and the value of the house has risen by 20% (120k). So your total equity is 620k.
Option 1 your partner will get £465k back, you'll get £155k.
Option 2 your partner will get £450k back, you'll get £170k.
Option 3 your partner will get £492.5k back, you'll get £127.5k
Option 4 partner = £510k, you £110k

And now let's look at Year 25. You've fully paid off the mortgage (150k), and say the value of the house has risen by 80% (480k). You now have 1.08m equity
Option 1 your partner will get £810k back, you'll get £270k.
Option 2 your partner will get £450k back, you'll get £630k.
Option 3 your partner will get £607.50k back, you'll get £472.50k
Option 4 partner = £690k, you £390k

(Big caveat to all this, these are wildly theoretical numbers and must be taken with a huge pinch of salt. Just mostly to demonstrate how "fair" or otherwies various splits may or may not be at various times in the life of the mortgage.)

You may even want to look at another another hypothetical scenario where the property decreases in value a bit as well.

But as you can see there is wildly different results depending on various stages of the mortgage. Which seems "fairest" to you?

Edit: confusing wording, fixed calcs

denisekingston

Please correct me if I’m wrong - I thought since my partner is paying upfront in cash 75% of the house price, that in itself is already considered a deposit and I only need to get a mortgage myself for the other 25%, without needing to contribute to the deposit anymore. And no, he won’t contribute anything to the mortgage. It is just me on the mortgage. Would bank allow this type of mortgage by the way?

davidmcn

denisekingston said:

Please correct me if I’m wrong - I thought since my partner is paying upfront in cash 75% of the house price, that in itself is already considered a deposit and I only need to get a mortgage myself for the other 25%, without needing to contribute to the deposit anymore. And no, he won’t contribute anything to the mortgage. It is just me on the mortgage. Would bank allow this type of mortgage by the way?

The bank can't repossess a quarter of a house. So the mortgage (i.e. the security over the house) as a minimum would need to be granted by you jointly. Lenders generally want the borrowers and the owners to be one and the same, so it's going to be simplest just to get a joint mortgage.

Having you as the sole borrower is theoretically possible, but then effectively means your partner is guaranteeing it by putting his 75% of the house at risk of being repossessed, while having no control over the loan account - so banks prefer to avoid the hassle.

denisekingston

seradane said:

There's quite a few options here, and it helps to work thorugh various scenarios, e.g. should you have to sell in 1 year, 10 years or 25 years... 

Options for splitting it include:

1. Pure 75/25% split
2. Deduct original deposit contributed, then the remaining equity is 100% to you as you're the only one paying it off
3. Deduct original deposit contributed, then split the remaining equity by some percentage (let's say 75%/25% in favour of you)
4. Deduct value contributed (he gets 450k, you get up to 150k), equity split 50/50

You don't say what (if any) deposit you are contributing, so I will assume none. I also assume he won't contribute anything to the mortgage, that's all you. You might want to tweak these numbers if either of those assumptions are wrong.

So in Year 1, ok so nobody's choosing to sell now, but say you've had some crisis and need to sell for whatever reason. You've paid maybe 5k off the mortgage, house is same price, so equity is £455k.
Option 1 your partner will get £341k back, you'll get £114k.
Option 2 your partner will get £450k back, you'll get £5k.
Option 3 your partner will get £451.25k back, you'll get £3.75k
Option 4 partner = £450k, you £5k

Now let's look at Year 10. Let's say you've paid 50k off the mortgage, and the value of the house has risen by 20% (120k). So your total equity is 620k.
Option 1 your partner will get £465k back, you'll get £155k.
Option 2 your partner will get £450k back, you'll get £170k.
Option 3 your partner will get £492.5k back, you'll get £127.5k
Option 4 partner = £510k, you £110k

And now let's look at Year 25. You've fully paid off the mortgage (150k), and say the value of the house has risen by 80% (480k). You now have 1.08m equity
Option 1 your partner will get £810k back, you'll get £270k.
Option 2 your partner will get £450k back, you'll get £630k.
Option 3 your partner will get £607.50k back, you'll get £472.50k
Option 4 partner = £690k, you £390k

(Big caveat to all this, these are wildly theoretical numbers and must be taken with a huge pinch of salt. Just mostly to demonstrate how "fair" or otherwies various splits may or may not be at various times in the life of the mortgage.)

You may even want to look at another another hypothetical scenario where the property decreases in value a bit as well.

But as you can see there is wildly different results depending on various stages of the mortgage. Which seems "fairest" to you?

Edit: confusing wording, fixed calcs

Sorry, I don’t get how you come to the equity number?

seradane

In theory yes, but unless he has particularly poor credit, it might be easier to get a joint mortgage and then you just pay it off yourself. The banks don't care who pays it off as long as one of you does. If it's just you on the mortgage, they might treat his deposit as a gift, as it's not your money - which some banks are funny about.

In terms of your salary you shouldn't have any issues getting a mortgage of that size.

seradane

denisekingston said:

seradane said:

There's quite a few options here, and it helps to work thorugh various scenarios, e.g. should you have to sell in 1 year, 10 years or 25 years... 

Options for splitting it include:

1. Pure 75/25% split
2. Deduct original deposit contributed, then the remaining equity is 100% to you as you're the only one paying it off
3. Deduct original deposit contributed, then split the remaining equity by some percentage (let's say 75%/25% in favour of you)
4. Deduct value contributed (he gets 450k, you get up to 150k), equity split 50/50

You don't say what (if any) deposit you are contributing, so I will assume none. I also assume he won't contribute anything to the mortgage, that's all you. You might want to tweak these numbers if either of those assumptions are wrong.

So in Year 1, ok so nobody's choosing to sell now, but say you've had some crisis and need to sell for whatever reason. You've paid maybe 5k off the mortgage, house is same price, so equity is £455k.
Option 1 your partner will get £341k back, you'll get £114k.
Option 2 your partner will get £450k back, you'll get £5k.
Option 3 your partner will get £451.25k back, you'll get £3.75k
Option 4 partner = £450k, you £5k

Now let's look at Year 10. Let's say you've paid 50k off the mortgage, and the value of the house has risen by 20% (120k). So your total equity is 620k.
Option 1 your partner will get £465k back, you'll get £155k.
Option 2 your partner will get £450k back, you'll get £170k.
Option 3 your partner will get £492.5k back, you'll get £127.5k
Option 4 partner = £510k, you £110k

And now let's look at Year 25. You've fully paid off the mortgage (150k), and say the value of the house has risen by 80% (480k). You now have 1.08m equity
Option 1 your partner will get £810k back, you'll get £270k.
Option 2 your partner will get £450k back, you'll get £630k.
Option 3 your partner will get £607.50k back, you'll get £472.50k
Option 4 partner = £690k, you £390k

(Big caveat to all this, these are wildly theoretical numbers and must be taken with a huge pinch of salt. Just mostly to demonstrate how "fair" or otherwies various splits may or may not be at various times in the life of the mortgage.)

You may even want to look at another another hypothetical scenario where the property decreases in value a bit as well.

But as you can see there is wildly different results depending on various stages of the mortgage. Which seems "fairest" to you?

Edit: confusing wording, fixed calcs

Sorry, I don’t get how you come to the equity number?

Equity is the value of 'cash' you have in your house, usually made up of a combination of original deposit, contributions to the mortgage and the difference in price of your house when you sell it as compared to when you bought it.

In terms of how I picked those numbers? As I said below, they are wildly theoretical and not based on any reality - it's just to demonstrate how the split works out at different 'life stages' of the mortgage so to speak.

Grumpy_chap

I think the fair way to consider the equity going forward is that you own shares in proportion to the amount you paid for, so 25% / 75%.  Hopefully this concern will all be academic as life will be nothing but roses for the two of you.

For the mortgage in your name, the bank will expect you to have a deposit against your contribution.  Given your salary of £50k, it seems reasonable that you could save a deposit.

The bank may want the mortgage in joint names as the property will be in joint names.

getmore4less

if the numbers were closer and your income bigger then there could be other ways.

Simplest here is you own 75%:25% split  and that would be the % you split any maintenance/improvement to keep the ownership at 75% & 25%

He pays 75% cash you borrow 25%  secured against the property if needed.

When you sell you get 25% of the sale proceeds and pay off any outstanding debt from that, if not enough then you will owe the OH some money.

With £50k income you could go to 2/3 1/3(£200k)  if that won't leave you short of free cashflow to pay your share of the ongoing input and living,  (depends on OH income and free cash differences)

Probably best to get a broker to structure the borrowing and will need a trust deed to detail the finances.
the deed should also cover sale triggers and what happens if you can't/won't pay the mortgage.


Any algorithm should work for all values.
None of the 4 options proposed by seradane work for the equity based sharing of the property.

denisekingston

If we go for a joint mortgage in both our names, and my partner pays 75% of the house price upfront in cash, I presume this is then considered a deposit and I don’t have to pay any deposit myself even though in reality I’ll be paying the mortgage myself?

getmore4less

That's fine and probably the way to go
Although he becomes liable for the mortgage if you don't pay the trust deed can take account of that.

As long as you stay responsible for the debt and pay it  is as if you paid in cash for your share.

Some people get confused and don't understand that cash, borrowing 3rd party or secured are effectively the same thing when it comes to the share you own.