Tennants in Common mathematical question!

getmore4less

coffeehound said:

getmore4less said:
That fails because there is debt being serviced.

But the costs of servicing the debt are included in the totals that each partner has paid

That the  issue it should not be included as it gets the wrong answers

Buy a house 50:50 one pays cash one borrows.

The one that borrows end up with more than 50% if you include the interest.

The higher the interest rate the more the borrower end up owning.

Any algorithm should work for all combination of values

Total spent fails.

Tokmon

zipp said:

Hi everyone, hope you're all doing well.
My partner and I bought a flat eight years ago.
He put two thirds of the large deposit (200k split between us) and I put a third so we did a declaration of trust that states that he owns two thirds of said property and I own a third of it.
We have been splitting the mortgage repayments 50/50 and all maintenance costs such as roof works etc 50/50. I also made a large overpayment  (15k) to the mortgage in order to keep my third share balance a couple of years ago.
Yesterday we were going over finances and it occurred to us that as we have been paying everything 50/50 this alters my investment in the flat
(as if we had stuck to me paying one third of mortgage payments and outgoings that would have reflected my one third share in the property?)
We were trying to work it out how we can make it fair say if we sell should I take a larger share of the profit than one third etc but it boggled our brains !
So if there is anyone who is mathematically attuned and would help us with this equation we would be most grateful! 
zipp

Why did you have a declaration of trust that states that? Whoever advised you to do that was a bit silly.

What you should have done was done a declaration of trust that said that whenever the flat is sold you each get back whatever percentage of the total price your deposit was equal too at the time of purchase and then split any remaining money from the sale 50/50 after all fees. This would then be 100% fair if you both paid half the mortgage each no matter what price the flat was sold for.

If i was in your position then i would wait until the flat is sold and then you can work out exactly what you both should get based on the amount you have put in and including the extra 15k overpayment. But until then there is no point in working it out because it doesn't change the fact that you only own a third unless you want to adjust your future payments to compensate for the extra money you have put in and start paying less. If that's the case the easiest way would be to use a spreadsheet.

knitmare

How much of the mortgage is left to pay? Are you planning to sell any time soon? 

zipp

You're all very kind to reply so fast thank you so much for all the useful comments.
To be more detailed  - the purchase price was 345k 
The deposit we paid was 200k I put 60k and my partner 140k 
The overpayment of 15k I mentioned, was my contribution to an overpayment and my partner also made an overpayment of 15k
So basically all payments have been split 50/50 except for the deposit.
Many thanks for all your help

getmore4less

zipp said:

You're all very kind to reply so fast thank you so much for all the useful comments.
To be more detailed  - the purchase price was 345k 
The deposit we paid was 200k I put 60k and my partner 140k 
The overpayment of 15k I mentioned, was my contribution to an overpayment and my partner also made an overpayment of 15k
So basically all payments have been split 50/50 except for the deposit.
Many thanks for all your help

Still not enough information to do a proper share calculations

getmore4less

Can do some of the numbers and do some guessing/examples for the missing bits.

Conveniently once you have a split of the mortgage(at 50:50) then as long as all payments are equal the mortgage  drops out except for how much of the debt you each have left to be taken of after the split of the value.

The starting point is cash in and debt serviced that should include all costs to buy the place as well.
£345k + costs  split
D1(£60k) + D2(£140k) + mortgage(£145k)
you can add in the share of the costs to the D's

(Not sure how you got 2/3 & 1/3 as £140 & £60 would be 70% 30%)


shares before costs added of the cash in and debt serviced
S1 = £60k + £72.5k = £132.5k/£345k  = 38.406%
S2 = £140k + £72.5k  = £212.5k/£345k = 61.594%


That should have been the ratio that any ongoing costs of maintenance and improvement should have been split but you say you did 50:50 on those how do you adjust for that

there are 3 main ways to deal with these costs.
if they were near the beginning you can add them to the purchase equation, typically if it was stuff you would agree you would do at the start if you bought something that needed work. eg lest buy this place for £345k and spend £10k doing it up.

You can factor each spend to adjust ownership at the time of spend, to do that you do a virtual sell(at value) and buy(at value+spend) to work out the new %

eg. if the place was worth £400k and you spend £5k each using the above starting %
S1 sell £400k * 38.406% =  £153,624  buy £158,624/£410,000 = 38.689%

This gets a bit tedious and makes small differences if lots of spends so the alternative is count it at the beginning(buys a share) as above  or the end(cash adjust based on the % owned how it should have been split)
beginning
S1 = £60k + £72.5k + £5k= £137.5k/£355k = 38.732%
end
The £10k should have been split £3,541 and £6,159  S2 owes S1 £1,159.

With this example we now have 3 scenario with the  £10k spend but what does that mean in practice.
lets say the place is now worth £450k
depending which you use S1 gets(less S1 share of the outstanding mortgage) 
begining
£450k * 38.732% = £174,294
middle
£450k * 38.689% = £174,100
end
£450k * 38.406% =  £172,827 + £1,159 = £173,986

What this shows is the effect of the timing of the money added to the pot.
As money is spent 50:50 it trends the ownership towards 50:50 from the starting point.

Depending on the amounts involved this could be just a few £100 over the 8 years  but could easy get into the £1000s

It would be fairly trivial to put this into a spreadsheet if you wanted to play around with the numbers as things like intermediate house value are going to to be guesses and you may not have good records of all the spends.
end of the day, crunch the big ones and get a range for where you should be now 8 years down the line and potentially reset expectations

Looks like you are well on top of the mortgage should be around 50% of  the starting value with 8y and £30k overpayments.

(NOTE: that the mortgage was ignored doing this as it just buys a share at the start, any payments just reduce the debt they don't change ownership).





 

zipp

Wow that is so helpful! Thankyou so much getmore4less makes sense!
Only bit I don't understand...
"(NOTE: that the mortgage was ignored doing this as it just buys a share at the start, any payments just reduce the debt they don't change ownership)."

 Just wondering how that works - say if I paid off the rest of the mortgage myself (about 20k) wouldn't that mean that I had put more into the pot and therefore should reflect on my overall investment  and vice versa for my partner?

Please forgive if this is an ignorant question but trying to be thorough so we really understand the implications of how we pay back the outstanding mortgage.

Thanks so much for giving this your thought and maths skills!

Best wishes

saajan_12

zipp said:

You're all very kind to reply so fast thank you so much for all the useful comments.
To be more detailed  - the purchase price was 345k 
The deposit we paid was 200k I put 60k and my partner 140k 
The overpayment of 15k I mentioned, was my contribution to an overpayment and my partner also made an overpayment of 15k
So basically all payments have been split 50/50 except for the deposit.
Many thanks for all your help

Okay, so your share is 60k deposit + you're paying off the capital and interest on half the mortgage (145k / 2 = 72.5k). . Ideally you would also add in the buying costs and initial renovation costs to this. This is out of a total value of 345k on the value, so on the property value:
Your share = (60k + 72.5k) / 345k = 38.4%
Partner's share = (140k + 72.5k) / 345k = 61.6%

Remember you still each owe 50% of the mortgage, so if you sell before the mortgage is paid off, you would each get 38.4% / 61.6% of the total selling price, and then pay 50% of the remaining mortgage out of your respective shares. If you make any overpayments on the mortgage, those should be 50/50. 

For future capital expenditure, ie which would increase the value, you should contribute in the 38.4% / 61.6% ratio, to preserve the shares. Or if you choose a different split at the time, then adjust the above. 

getmore4less

zipp said:

Wow that is so helpful! Thankyou so much getmore4less makes sense!
Only bit I don't understand...
"(NOTE: that the mortgage was ignored doing this as it just buys a share at the start, any payments just reduce the debt they don't change ownership)."

 Just wondering how that works - say if I paid off the rest of the mortgage myself (about 20k) wouldn't that mean that I had put more into the pot and therefore should reflect on my overall investment  and vice versa for my partner?

Please forgive if this is an ignorant question but trying to be thorough so we really understand the implications of how we pay back the outstanding mortgage.

Thanks so much for giving this your thought and maths skills!

Best wishes

Once you step away from the debt being paid at the agreed % you have to do some re calculations.

One option that works is you recalculate just the debt and then change the % on the debt paid.

eg. if there was £40k left and you paid of your £20k  it would change from 50:50  to 100:0 and OH would just keep paying their share.  

where you pay it off completely say it was £20k,  £10k each then OH owes you £10k   
you can do the same as with other cash inputs a virtual sale and buy.

using this starting point.
shares before costs added of the cash in and debt serviced
S1 = £60k + £72.5k = £132.5k/£345k  = 38.406%
S2 = £140k + £72.5k  = £212.5k/£345k = 61.594%
Say the place is now worth £480k  with £20k mortgage
S1 = £480 * 38.406% = £184,349  
if really selling you would take off the £10k from that but you are adding £20k you use £10k to pay off your share of the mortgage and transfer £10k from the OH to cover his share that you paid off
share becomes
S1 = £194,349/£480k = 40.489%  (2.083% more)

Another way to look at it(which may be easier) is £20k/£480k is 4.167%  and you are buying 1/2 of that off the OH 2.083(5)%

This can also be used for unequal overpayments where you want to keep the mortgage at 50:50,  any OP buys 1/2 its value off the OH at current value


~0.001% is £5 on £500k house  so rounding to 3dp does introduce errors that can accumulate but  end of the day when dealing with £100k and guesses for things like value the odd £100 is loose change. 

have gone over the calcs and had to change them as I got finger trouble  so do check the numbers carefully once you grasp the principle always worth doing both S1 and S2 to make sure the % add up to 100% and the cash adds up to the value as

Having done all that what a lot of people do is go the get your deposits back route and keep everything 50:50  it is an option to do that retrospectively.

It is the same as the OH lending you the money interest free to balance the deposits but forego the interest/equity change

In this case equivalent of £40k loan to you that you can pay back as you go or just pay back if you ever sold/split

Might be much simpler way to approach it if the reality is you share you lives on a pretty much shared basis.
it does change the potential cash position a lot though when property prices go up as that £40k would be 11.6% of the property value that OH loses the increase on.

zipp

saajan_12 said:

Okay, so your share is 60k deposit + you're paying off the capital and interest on half the mortgage (145k / 2 = 72.5k). . Ideally you would also add in the buying costs and initial renovation costs to this. This is out of a total value of 345k on the value, so on the property value:
Your share = (60k + 72.5k) / 345k = 38.4%
Partner's share = (140k + 72.5k) / 345k = 61.6%

Remember you still each owe 50% of the mortgage, so if you sell before the mortgage is paid off, you would each get 38.4% / 61.6% of the total selling price, and then pay 50% of the remaining mortgage out of your respective shares. If you make any overpayments on the mortgage, those should be 50/50. 

For future capital expenditure, ie which would increase the value, you should contribute in the 38.4% / 61.6% ratio, to preserve the shares. Or if you choose a different split at the time, then adjust the above. 

Great thanks for the over view very simple and helpful