Deed of trust split

spec65

Hello!

I'm new to the forum but I've been doing quite a lot of reading and searching using the search function but I can't find an answer to my question so I thought I'd ask here. 

I know this isn't actual legal advice, me and my partner are going for actual legal advice regarding this but I thought I'd get some opinions first! 

We are in the fortunate position to be buying a house together but have massively different deposit amount. We roughly earn the same per year.

We would like a Deed or Trust or equivalent and we can't work out the fairest way to ask the deed to be worded. We will both be paying 50% mortgage and bills/maintenance etc. 

Situation 1:
House value: £500,000

Mortgage amount: £350,000
Person 1 deposit: 140,000
Person 2 deposit : £10,000

House price after 10 years: £600,000
Mortgage balance after 10 years: £250,000

Each person would get back their deposit PLUS the % increase of the house value. In this situation 20%. This 20% will be subtracted from the house price increase of £100,000. This leaves person 1 with £168,000 and person 2 with £12,000. 
The decreased mortage figure then split 50/50 so £50,000 each. The Remaining house 'profit' of £70'000 split 50/50 so £35,000 each.

This means person 1 would come out with £253,000 and person 2 £97,000.

Does this sound right and/or fair?

Situation 2:
Same input figures

Each person would get back their deposit PLUS the % increase of the house value. In this situation 20%. This 20% will be subtracted from the house price increase of £100,000. This leaves person 1 with £168,000 and person 2 with £12,000.
 The decreased mortage figure then split 50/50 so £50,000 each. Each person then gets back a share equal to their deposit on the house profit rather than 50/50. So person 1 would get back 93% of the remaining £70,000 and person 2 would get back 7% of this figure. 

Person 1 would come out with £284,000. Person 2 would come out with £66,000. 

Is this right?

We just don't know which one is correct or more even as we both will pay 50/50 on everything but our deposit amounts are so different. 

Any comments would be very much appriciated! 

Thank you! 

Durban

I don't think it sounds fair to be honest and too complicated.

If it was me - I would do the deed of trust where person 1 would get out the first £130,000 of equity and the remaining equity split between both .

Thrugelmir

You can make is as simple or complex as you wish. There's no right or wrong answer. Protecting the respective deposits makes sense. How important is money to Person 1?  Are they also the major earner?  

spec65

Both earn the same. Person 1 just inherited a lot of money. I agree with protecting the deposits, but I think deposits should increase depending on if the house value increases? If the house value falls, deposit amount recieved back falls too? 

Thrugelmir

Fair enough. The solicitor can draft up whatever you want in the declaration of trust. .

Who is paying the legal fees etc at the outset?

spec65

Thrugelmir said:

Fair enough. The solicitor can draft up whatever you want in the declaration of trust. .

Who is paying the legal fees etc at the outset?

Legal fees are all equal. Literally everything is equal other than the deposit amounts. We know a deed can say anyhing but just wanted clarity on what was fair with the very unequal contributions to the deposit. Most people recommend just your deposits are protected and the remaining equity this split 50/50 but this fails to take into account inflation/interest on the deposits, hence situation 1. We just wanted some unbias opinions before we talk to legal to get views on the situation.

MWT

I would keep it simple:

#1 is buying 63% of the house (140,000+175,000)

#2 is buying 37% of the house (10,000+175,000)

Whenever it sells, split the net proceeds using those percentages.

spec65

MWT said:

I would keep it simple:

#1 is buying 63% of the house (140,000+175,000)

#2 is buying 37% of the house (10,000+175,000)

Whenever it sells, split the net proceeds using those percentages.

Upon reflection that does sound like the easier way haha I think we will be doing that. I was just interested in getting everyone's opinions! Thanks!

spec65

MWT said:

I would keep it simple:

#1 is buying 63% of the house (140,000+175,000)

#2 is buying 37% of the house (10,000+175,000)

Whenever it sells, split the net proceeds using those percentages.

My partner is having trouble understanding how this method is fair as #2 grows their money from 10,000 to 97,000 (970% increase) using the figures quoted above and #1 from 140,000 to 253,000 (81%) increase. I'm aware the percentage figures look bad and I think that's why they are struggling.

Could someone explain as to why this method is correct? Thanks! 

JGB1955

How about:

When first bought, the house purchase is made up of #1 deposit of 28% of cost, #2 2% of cost, mortgage 70% of cost.

Upon sale at £600K, equity is now £350K

#1 has invested £140K+ 100K of profit = 240K. This is 68% of equity  = £238K share.

#2 has invested 10K + 100K of profit = 110K.  This is 32% of equity = £112K share.

The house is then made up of #1, 40%, #2 18.3%, mortgage 41.6%

getmore4less

There are tons of thread on this on here surprised you have not found any as most deal with your situation. 
Don't forget it is not just the house price but all the costs as well, you need to start from the total cost to buy.

Also house costs should be split into ownership costs(maintenance improvement etc) and the costs of living in the place(bill council tax etc)

two basic ways
1. get your money back(interest free loan to other person)
2. equity shares.

Simplicity is bigger deposit lend the other the money to make deposits equal and own 50:50 
spends on property are split  50:50 after the sale the debt get paid back to P1 from P2 share

Mortgage amount: £350,000
Person 1 deposit: 140,000
Person 2 deposit : £10,000

P1 lends P2 £65k  so the deposits are £75k each 

Thats the same as the standard get you money back scenario many use, not equitable but easy to work with and you can come up with a side agreement for the loan. 

A modified version of that is P2 pays more of the mortgage(P1=£110, P2=240)

equity is probably fairer but many get the numbers wrong

the other issue is the ongoing cost ned to be split on the same % and the sale split is before the mortgage is taken off.

Same numbers from above if splitting te mortgage 50:50
P1=£140+£175= £315   P2=10k+£175k=£185k  P1=63%  P2=37%

any house costs get split in those proportions to keep ownership at those %

on sale you split the net proceeds(before the mortgage is taken off) bythose % and then pay 1/2 the remaining mortgage each from your share.