Trust deed apportionment, unequal deposit, equal ongoing payments

carl0s

Candice-Marie said:

Sorry to jump in, but we're going to have to draw up some sort of similar document in the next few months.  It sounds like it's a Trust Deed that we'll need  - were you advised that was the case, and does the solicitor need a particular specialism?

Yes a trust deed, and for you to hold the property as tenants in common rather than 'joint tenants'.
Yes it appears to be a specialism that most conveyancers don't really have the accountancy-brain for. I don't mean that in a derogatory way, but it seems like most conveyancing solicitors will write up a trust deed for £75 but they will not advise on the specifics of the apportionments (amounts, percentages). If they are working for you both on the purchase then they can't anyway as they need to remain impartial. I think ours could have put forward a few better options / examples though. TBH I have had what I would consider not-good-enough advice/ideas on how to apportion this, from: an IFA, an accountant and our conveyancing solicitor.
So, unless you work it out yourself with the help of people on here (thank you people!) then I would look at a specialist trust deed solicitor. I'm not sure how competent they are though.. a few have websites / pages saying they specialise in the intricacies.
I just wanted to be fair with ours, but keep it percentage based. Allow my partner's share to grow as the mortgage contributions increase our ownership over the years, but still protect my extra £70k contribution should the worst happen.

getmore4less

That is still wrong,

all sale cost come off first.

Then you work out the shares

 then you pay off the debt. 

If you each borrowed 1/2 the debt elsewhere it is obvious that is what you would do. 

Just because it is secured makes no difference to the financial calculations.
 
The security just protects the lender from you running away with the money. 

getmore4less

It is possible to have a trust deed for the financial side even when joint tenants.

The house transfers through survivorship but the trust deed can still create a debt to the estate that a survivor needs to pay. 

emjay2kay

Candice-Marie said:

Sorry to jump in, but we're going to have to draw up some sort of similar document in the next few months.  It sounds like it's a Trust Deed that we'll need  - were you advised that was the case, and does the solicitor need a particular specialism?

The solicitor you need probably works in the probate department; they're the ones who draft trusts regularly for wills, tax, estate planning etc. We were quoted about £500 for it though. Was going to be clauses about the rate of return on the deposit being index linked and all sorts to cover all bases. I decided to just draft a much simpler one myself which I'm perfectly happy with, but I would say that this is one of those things where if you do want something complicated with all the bells and whistles then you should pay someone properly to do it properly. Paying your conveyancing solicitors £75 isn't going to cut it.

getmore4less

Candice-Marie said:

Sorry to jump in, but we're going to have to draw up some sort of similar document in the next few months.  It sounds like it's a Trust Deed that we'll need  - were you advised that was the case, and does the solicitor need a particular specialism?

There are loads of threads on here of how to do it and what happens when you get it wrong.

Many can't get their head round the finances even the solicitor that carl0s is using.


you start by adding up all the costs and house price to get a starting number.
P1 put £x in
P2 put £y in 
debt £z 
The very simple approach is the get your deposit back used quite a lot.
This is the equivalent of the bigger deposit  lending the smaller deposit 1/2 the difference.
This can be done interest free or with some rate(eg debt rate) and paid back as you go or left to the sale.
you own everything 50:50. 

Sometime that does not work when the difference between x and y gets larger and it is not taking account the changes in value of the amount put in.

The second common approach is the one carlos is using but does need the handling of the debt done right(after the proceeds split not before)

A variation  is you balance it up by not splitting the debt 50:50 but by an amount to make the ownership 50:50.

eg where
x=20%
y=10%
z=70%
the 3 scenario
X could lend y 5% so they own 15%+35% = 50:50 each

or equitable debt split 50:50  they own 55:45(before mortgage is paid)

or split the debt then it become 20%+30%:10%+40% 
P1 pays 3/7 of the debt and P2 pays 4/7
when the sale happens that's the share of the debt they pay off from their 50%

carl0s

getmore4less said:

That is still wrong,

all sale cost come off first.

Then you work out the shares

 then you pay off the debt. 

If you each borrowed 1/2 the debt elsewhere it is obvious that is what you would do. 

Just because it is secured makes no difference to the financial calculations.
 
The security just protects the lender from you running away with the money. 

Hi. I am trying to follow along. Can you give me some scenarios or examples where or how this would make a difference to what we have (finally) got our solicitor to draft up? The 'sale costs to come off first', are presumably things like estate agent and solicitors costs for sale?

getmore4less

Although the costs will tend to be a smaller portion of the total they are not split 50:50 they should be split in proportion to the ownership.
with your 35%,24%,41%  the split is 55.5:44.5  not 50:50(out of the 41%) which they are if you lump them in with the mortgage.

For each £k of selling costs the difference is £55  probably between £5k and £10k on a £700k house  upto £550.

Have you accounted for the up front costs as well or gone down the 50:50 route with them(also wrong).

carl0s

getmore4less said:

Although the costs will tend to be a smaller portion of the total they are not split 50:50 they should be split in proportion to the ownership.
with your 35%,24%,41%  the split is 55.5:44.5  not 50:50(out of the 41%) which they are if you lump them in with the mortgage.

For each £k of selling costs the difference is £55  probably between £5k and £10k on a £700k house  upto £550.

Have you accounted for the up front costs as well or gone down the 50:50 route with them(also wrong).

Thank you, I do now understand. I think we can live with that oversight, but it's good to understand where you're coming from, and we'll keep it in mind for any updates to the deed in future (if for example one of us makes a large overpayment and requests an update to the deed).
The up-front costs we are intending to share, but in reality, the larger shareholder is funding a little more of it because the smaller shareholder is struggling for money and work currently.

getmore4less

With the buying costs if you split them 55.5:44.5  that will be what you have now and will be close enough.

Going forward it is far easier to just treat the debt separately and if one makes a large overpayment they pay less of the mortgage going forward.
Saves all the messing about with a virtual sale and purchase to rework the numbers.

Same with maintenance/improvement if you can keep them at around 55.5:44.5 it all just works without any valuation issues.

carl0s

getmore4less said:

 and if one makes a large overpayment they pay less of the mortgage going forward.

That's a straightforward way to look at it, but my reason for making overpayments would be to reduce our chance of ever being caught in bad debt, and reduce the cost of the loan for us both over the long term. Making an overpayment and then just skipping on the regular payments would be pointless surely.