Declaration of trust - sales fees?

leypt1

Hi all,

My partner and I are buying our first home as tenants in common.

The house price is 385000 and the mortgage is 85% of this.

Shares are as follows:

Partner 1 is paying 43k of the initial deposit (or 11% of the purchase price) and 65% of the mortgage from that point.

partner 2 is paying 14.8k (3.84% of sale price) of the initial deposit and 35% of the mortgage. 

We've done our sums and are happy with an arrangement whereby, after selling the flat and paying off the mortgage and sale costs, we split the equity 66%/33% (basically taking account of unequal deposits and mortgage payments). Overpayments, structural changes etc etc will all be paid for in a split of 65/35. If circumstances change we'll revisit the DOT (and we'll be remortgaging after 2 years anyway so can revisit then)

My question is - how do initial sale costs factor in?? Do we pay the solicitor etc in proportions of 65/35 or just 50/50 for the above split to "hold"? Partner 1 makes a lot more so getting this right would mean partner 2 would be more able to contribute to furnishing costs (or increase their deposit share!)

Apologies for the stupid question, this is the one bit we can't get our heads around.

Thanks in advance for any help!!

oldbikebloke

you can do what you want. Don't see why you are struggling with such one off small costs when you have split everything else.

if the disparity between income of A and B  means B is being harder pushed to fund it if 50/50 then obviously splitting everything down the line at the agreed % is "fairest".
That way when you split up and start arguing over who paid what and who gets what back when selling up, the answer will always be 65/35

Thrugelmir

Are you applying the same 65/35 split to maintenance costs, service charges, insurance etc? 

coachman12

You've made a sensible agreement about the split after a future sale. Make the same sensible agreement between yourselves, that you're both happy about, about the % share of solicitor's fees, purchase of furniture and anything else that occurs to you both. It's up to you. No magic formula.
All the best in your new home.

md258

I'd say go 65/35 for the buying costs (and the selling costs if/when applicable).

If you get married/have children you might want to re-look at that and pool all or most your money together- that's what my wife and I have now done.

leypt1

coachman12 said:

You've made a sensible agreement about the split after a future sale. Make the same sensible agreement between yourselves, that you're both happy about, about the % share of solicitor's fees, purchase of furniture and anything else that occurs to you both. It's up to you. No magic formula.
All the best in your new home.

Thank you! A helpfully clear-sighted answer  i think we were just thrown by other threads on DOT split where there was lots of discussion about splitting sale costs!

leypt1

Thrugelmir said:

Are you applying the same 65/35 split to maintenance costs, service charges, insurance etc? 

We're still working this through but the presumption is 50/50.  Higher earning partner would be happy to pay a 65% share if it means partner 2 can sleep or save a little easier that month

getmore4less

That does not look right. 

The house split should be before paying off the mortgage THEN the mortgage paid of from those share  split by paying %. 

Don't forget to include all buying costs. 

getmore4less

to explain and show why......

The house price is 385000 and the mortgage is 85% of this.
Shares are as follows:
Partner 1 is paying 43k of the initial deposit (or 11% of the purchase price) and 65% of the mortgage from that point.
partner 2 is paying 14.8k (3.84% of sale price) of the initial deposit and 35% of the mortgage. 
mortgage £327.2  split £212.68 £114.52
1, £43 + £212.68  = £255.68  = 66.41%
2, £14.8 + £114.52 = £129.32 = 33.59%
fairly close  to your 66/33

Overpayments, structural changes etc etc will all be paid for in a split of 65/35.
overpayments should be at the mortgage split not the ownership split.
costs should be at ownership split.

after selling the flat and paying off the mortgage and sale costs, we split the equity 66%/33%
this is a problem because on day one ignoring the costs if you do this you end up with(using 66.5/33.5)

1 : £38.437k
2 : £19.363k
Which is not what you put in.

To have the deposit and mortgage split the same %  so everything else is also done at the same % and the pay off mortgage first works you need to adjust it slightly.

For 65:35   if we use the £43k  the other deposit needs to be closer to £23k
The current  deposit ratio is closer to 74:26 so you could go with that for the mortgage as well.

given this is also very close to 1/3  2/3
P1 could gift/lend  P2 £4.5k to  make the deposit a 1:2 ratio and then split the mortgage 1:2 ratio  

all nicely balanced. own the place 1/3 2/3 and pay the mortgage 1/3  2/3


 

badger09

To be honest, I would KISS (Keep It Simple Stupid - just a phrase, not you!)

As you've agreed a split of the main costs, simply apply the same split elsewhere. There's enough to sort out, without getting bogged down with minor amendments. If/when your financial, or legal status changes, have a rethink then. Good luck.

steampowered

Personally, I would split the equity as follows:
- Equity equivalent to the first 14.84% of the property gets split according to your deposit.
- Any remaining equity gets split 65/35. 

If you prefer to keep it simple by agreeing a 65/35 split, then I think all sale costs as well as things like ground rent / service charge  should be split in the same proportion.