Unequal shares - deed of trust

MrHuffPuff

Hi, my partner and I are in the process of buying our first house. We'll be tenants in common but trying to work out how to reflect our unequal shares. I'm putting in all 110k of the deposit which is about 34% of the purchase value (325k). We will then split the mortgage interest and repayments half and half. So the simplest way would seem to be for my share to be 67% (minus half the outstanding mortgage balance) and for my partner's share to be 33% (minus half the outstanding mortgage balance). I'm assuming something as simple as this could be accommodated by a standard deed of trust but maybe I'm wrong. 

Also I don't know whether it's too complicated to also try and take account of some additional money that I'll be putting into it - let's say £30k. To account for this in the deed of trust the only thing that came to mind before i got confused was to imagine the property value being £30k above its purchase price (so £355k) and to base my share on a contribution of £140k which turns out to be about 39% of the revised property value. Plus half of the mortgage would mean my share is 70% (minus half the outstanding mortgage) and my partner's is 30% (minus half the outstanding mortgage). But then i thought well if we sold it for an amount that was less than £355k my partner would potentially be out of pocket with less than she would need to cover half the mortgage. And then I got confused again and wondered about what fairest way to do this is and what is possible anyway with a standard deed of trust. 

Any suggestions much appreciated. We will be sorting our solicitors in the next day or two so we're keen to have a clear sense of what we want.

Thanks in advance!

FarmGirl78

The easiest, simplest and usual way of doing this is to say that in the event you'd get the first £140k (or £110k or whatever you put in) after redeeming the mortgage, with the remaining equity being split 50/50.

[Deleted User]

MrHuffPuff said:

Hi, my partner and I are in the process of buying our first house. We'll be tenants in common but trying to work out how to reflect our unequal shares. I'm putting in all 110k of the deposit which is about 34% of the purchase value (325k). We will then split the mortgage interest and repayments half and half. So the simplest way would seem to be for my share to be 67% (minus half the outstanding mortgage balance) and for my partner's share to be 33% (minus half the outstanding mortgage balance). I'm assuming something as simple as this could be accommodated by a standard deed of trust but maybe I'm wrong. 

Also I don't know whether it's too complicated to also try and take account of some additional money that I'll be putting into it - let's say £30k. To account for this in the deed of trust the only thing that came to mind before i got confused was to imagine the property value being £30k above its purchase price (so £355k) and to base my share on a contribution of £140k which turns out to be about 39% of the revised property value. Plus half of the mortgage would mean my share is 70% (minus half the outstanding mortgage) and my partner's is 30% (minus half the outstanding mortgage). But then i thought well if we sold it for an amount that was less than £355k my partner would potentially be out of pocket with less than she would need to cover half the mortgage. And then I got confused again and wondered about what fairest way to do this is and what is possible anyway with a standard deed of trust. 

Any suggestions much appreciated. We will be sorting our solicitors in the next day or two so we're keen to have a clear sense of what we want.

Thanks in advance!

This type of question has been asked and answered with worked examples many times on the forum previous. Just search for “unequal deposits” or “deed of trust”. 

getmore4less

FarmGirl78 said:

The easiest, simplest and usual way of doing this is to say that in the event you'd get the first £140k (or £110k or whatever you put in) after redeeming the mortgage, with the remaining equity being split 50/50.

That's  the same as the OP giving their OH a interest free loan of 1/2 the money.
they may not be happy with that.

getmore4less

If there are other costs with buying then they should all be included in the total starting costs.
SDLT is often the big one but the other fees add up.

you basically have it right, the costs of buying/selling often mean the starting point can be negative  untill house values goes up enough.


One other point is once you have the equitable split all ongoing house maintenance and improvment costs should also be at that split.
(keep house costs separate from living costs)


if you always put the same amounts into the mortgage then that just works as a reducing debt that you split and take off your shares


Depending on other things like income and cashflows you could make adjustments to balance things up. 

eg if you are cash rich and they have a bigger income they could take on a bigger portion of the mortgage

to make it equal with £355 total starting that's .£177,500 each.
you put in £140 and take on  £37,500 of the mortgage OH does the other £177,500 


The other common approach is get you money back and split the rest 50:50
as said this is equivalent to an interest free loan of1/2 the difference

if you are happy with that then a different approach is a side loan for 1/2 the difference  to be paid back either on an ongoing basis or at the end.

That could be interest free or some other way to account for the lost benefit, as that is £55k-£70k its a fare bit.

    

steampowered

You should get 34% of the value of the property back when it is sold. The rest is split 50/50.

Going for a simple 70/30% split would be unfair on you if the house is sold before the mortgage is fully paid off. For example:
- You are paying £110k into the property now and your partner is paying £0k.
- Mortgage will be £215k.
- Imagine that the house is sold in a few years time for £400k. Let's say during that time you have paid £25k off the mortgage (£10k each) - so mortgage outstanding is £190k.

In that scenario:
- The equity in the property is £210k.
- You have paid £135k. Your partner has paid £25k.
-  On a 70/30 split, you get £147k. Your partner gets £63k.

tacticalbanjo

steampowered said:

You should get 34% of the value of the property back when it is sold. The rest is split 50/50.

Going for a simple 70/30% split would be unfair on you if the house is sold before the mortgage is fully paid off. For example:
- You are paying £110k into the property now and your partner is paying £0k.
- Mortgage will be £215k.
- Imagine that the house is sold in a few years time for £400k. Let's say during that time you have paid £25k off the mortgage (£10k each) - so mortgage outstanding is £190k.

In that scenario:
- The equity in the property is £210k.
- You have paid £135k. Your partner has paid £25k.
-  On a 70/30 split, you get £147k. Your partner gets £63k.

You're still looking at half of 65% plus the original 39% (not 35%) which is 69.5%.

In your example with £190k equity:
69.5% of £190k = £132.05
30.5% of £190k = £57.95

If we do 39% then 50% each of the rest we get
39% of £190 = £74.1
This leaves £115.9k to split
50% of £115.9k = £57.95
This gives a £132.05 to OP and £57.95 to the partner. It's exactly the same because it just moves around the order of operations.

If you do the same calculation before deducting mortgage though you get this:
69.5% of £400k = £278k
30.5% of £400k = £122k
50% of £210k (outstanding mortgage) = £105k
This gives £173k to OP and £17k to partner.

Different percentages will always 'unfair' because one will see more of any price rise than the other. But as others have pointed out, if you go down the get your deposit plus half the equity back, that's essentially an interest free loan to your partner. So 'unfair' either way! OP will have to decide what he and his partner are most comfortable with not forgetting that if you are divvying up the proceeds from the house it's probably because you've split up and you'll most likely be feeling miserable to each other.