Partner contributing more when putting a deposit down on a house ?

Exodi

littlegreenparrot said:

Blimey, 40k saved on an income of 21k, that's good going.

I feel like this is akin to one of The Sun articles that pops up every week on my social media newsfeed -

I saved £40k on a salary of 21k! I stopped getting takeaway coffees, made sure to limit takeaways to special occasions and only buy clothes when I really needed them.

Oh, and I was able to live rent and bill free with my parents for several years... and my parents gifted me £35k...

maman

I don't think it matters whether one person saved £40K from not having take away coffee or the generosity of parents. For a couple going into a fledgling relationship and investing in property I think it's wise to protect your financial investment. Longer term it might revert to 50:50 but I wouldn't rush into sharing everything just yet. 

getmore4less

Tokmon said:

BMTH said:

Brie said:

I would have thought the fairest thing is to get a legal agreement that shows the relative amounts of deposit at the time of purchase.  

So say you found a rose covered cottage for a mere £100k...(I know, we all wish....)   If she has £40k then that means she "owns" 40% of the house.  If you have £5k then you "own" 5%.  And the bank owns the other 55%.  

Should things go wrong and you split (but hopefully that won't happen) and sell the place she gets 40%, you get 5% and then you split the rest 50/50 or based on your respective contributions to both mortgage and upkeep.  

The important bit is to have it documented and there's a solicitor involved.  And you should both have wills.

Ah, this makes sense. I assume this would be a seperate agreement to actually buying the house? At least this still allows us to buy using both of our deposits combined and not necessarily miss out so to speak. Thank you, very helpful.

As mentioned you want to get a "declaration of trust". What Brie says is close to being right but the bank doesn't own any part of the house even when buying with a mortgage.

Let's use the example above of a £100k house

You could own the house 50/50 but have a declaration of trust that says when sold 40% goes to your partner 5% goes to you (as this is the percentage of the house each of your deposits are worth) then anything left over is split 50/50 between you after all fees of selling (assuming you each pay half of the mortgage).

This means if house prices go up or down you each benefit or lose from the based on the percentage you put in the from the start so is the fairest way to do it. 

classic error in how it should be done.

The proceeds after costs but before mortgage gets paid 40%,  5%, rest(less after mortgage) 50:50.

if they pay the mortgage 50:50

Brie

getmore4less said:

Brie said:then you split the rest 50/50 or based on your respective contributions to both mortgage and upkeep.  

if they pay the mortgage 50:50

But it's not all about money as any divorce lawyer will tell you.  There's lots of times when 1 person is paying 100% of the mortgage but the other is still entitled to 50%.  e.g. he's earning and she's a stay at home mom for 5 years.  hence the consideration of contributions to upkeep.

Tokmon

getmore4less said:

Tokmon said:

BMTH said:

Brie said:

I would have thought the fairest thing is to get a legal agreement that shows the relative amounts of deposit at the time of purchase.  

So say you found a rose covered cottage for a mere £100k...(I know, we all wish....)   If she has £40k then that means she "owns" 40% of the house.  If you have £5k then you "own" 5%.  And the bank owns the other 55%.  

Should things go wrong and you split (but hopefully that won't happen) and sell the place she gets 40%, you get 5% and then you split the rest 50/50 or based on your respective contributions to both mortgage and upkeep.  

The important bit is to have it documented and there's a solicitor involved.  And you should both have wills.

Ah, this makes sense. I assume this would be a seperate agreement to actually buying the house? At least this still allows us to buy using both of our deposits combined and not necessarily miss out so to speak. Thank you, very helpful.

As mentioned you want to get a "declaration of trust". What Brie says is close to being right but the bank doesn't own any part of the house even when buying with a mortgage.

Let's use the example above of a £100k house

You could own the house 50/50 but have a declaration of trust that says when sold 40% goes to your partner 5% goes to you (as this is the percentage of the house each of your deposits are worth) then anything left over is split 50/50 between you after all fees of selling (assuming you each pay half of the mortgage).

This means if house prices go up or down you each benefit or lose from the based on the percentage you put in the from the start so is the fairest way to do it. 

classic error in how it should be done.

The proceeds after costs but before mortgage gets paid 40%,  5%, rest(less after mortgage) 50:50.

if they pay the mortgage 50:50

How is that an error?

If you sell the house for the same price then each person get's back their original deposit and it goes up and does as the value increases. If you take off the fixed costs first then that means both deposits are reduced by an equal percentage based on the amount but then the person with the lower deposit amount will benefit more when the rest is split 50/50 and the person with the larger person would lose out in the 50/50 split.

So that isn't fair to me. 

getmore4less

There are 2 basic ways to do this sort of split.

One  very common option is get your deposits back.

This is the equivalent of the bigger deposit lending 1/2 the difference interest free.

This has some issues as the property prices move and with a big difference may not be that fair. 

where the smaller deposit can pay more(bigger income it can be structured as a side loan or just split the mortgage different to 50:50
using the ongoing example on £100k  £40,£5k,£55K  yo can split the mortgage £10k, £45k so you own 50:50.

the split before mortgage is 50:50 then you pay off the outstanding share of the mortgage each took care of.
this can be tracked on paper very easily and different overpayments can be done on each bit.

The other common approach is equitable shares where you cash and debt servicing buys part of the property.

so in this case splitting the mortgage 50:50 ownership would be 67.5% 32.5%

A lot of people think it is 40:5 or 88.9% 11.1% which is wrong.

these three scenario are financial equivilent.

if they bought  with  £67,500 and £32,500 clear that's the split

if they each borrowed £27,500  cash off bank of mum and dad  to get to £67,500 and £32,500 and bought the place with that cash most people can see that the ownership is still split the same  they just have a debt each to BofM&D.

Changing that to a different lender(mortgage) does not change that situation its the same cash buying the place.

Tokmon

getmore4less said:

There are 2 basic ways to do this sort of split.

One  very common option is get your deposits back.

This is the equivalent of the bigger deposit lending 1/2 the difference interest free.

This has some issues as the property prices move and with a big difference may not be that fair. 

where the smaller deposit can pay more(bigger income it can be structured as a side loan or just split the mortgage different to 50:50
using the ongoing example on £100k  £40,£5k,£55K  yo can split the mortgage £10k, £45k so you own 50:50.

the split before mortgage is 50:50 then you pay off the outstanding share of the mortgage each took care of.
this can be tracked on paper very easily and different overpayments can be done on each bit.

The other common approach is equitable shares where you cash and debt servicing buys part of the property.

so in this case splitting the mortgage 50:50 ownership would be 67.5% 32.5%

A lot of people think it is 40:5 or 88.9% 11.1% which is wrong.

these three scenario are financial equivilent.

if they bought  with  £67,500 and £32,500 clear that's the split

if they each borrowed £27,500  cash off bank of mum and dad  to get to £67,500 and £32,500 and bought the place with that cash most people can see that the ownership is still split the same  they just have a debt each to BofM&D.

Changing that to a different lender(mortgage) does not change that situation its the same cash buying the place.

The common one where you get your deposit back results in unfairness when there is change in property prices as you stated.


With my example each person get's their deposit back proportional to the rise or fall in house prices and then they split remaining equity after costs between them (as they both paid 50% of the mortgage and other costs while owning the property). This then means no matter when they sell the house they each get back a fair amount based on what they put in and the price the house sold for.
I have created a graph in excel previously to show this to be the case and the fairest way to do it in this situation.


The first bit i have highlighted above i agree is a good way to do it if both parties are not going to split the mortgage payments 50/50 and a good way to separate it even more. 


Equitable shares results in unequal ownership of the property so is a different scenario again.



The only way to have 50/50 ownership with unequal deposits and both paying half the mortgage is to have a declaration of trust stating what i said in my post above. This takes into account any change in house prices and proportionally pays back based on that change and mortgage interest what each person has paid in. 
The only other fair ways you have described result in a different ownership percentage of different mortgage payments.

So none of that explains why you think I have made an error.

bramptonbrew

It's completely normal to have differing contributions - just make sure you have the declaration of trust as mentioned by people above. My husband contributed 100% to our deposit because of an inheritance, I just pay part of the mortgage each month (he earns more than me so we have it as a 60/40 split); bills we just divide evenly between us (he pays council tax/broadband, I pay electric/gas/water/tv licence). The main thing to be mindful of is communication! If you start assuming what the other person is thinking it can go downhill fast - just be open about expectations/ability to contribute and go from there. Good luck.

Exodi

I find there are logical 'challenges' with many types of DoT scenarios.

Some off the top of my head (obviously extreme examples but they are to highlight the point) -

A fixed split - those who contribute more do not get more for their investment should house prices go up
(e.g. person A puts in £99k, person B puts in £1k - both pay mortgage 50:50). One day after buying the property they decide to sell and to their suprise find out the house has increased by £100k. This is split 50:50 - e.g. Person A gets £149k (50% increase on their deposit), person B gets £51k (5000% increase).

A variable split - those who contribute more are exposed to more risk in negative equity scenarios
(e.g. Person A puts in £99k, person B puts in £1k - both pay mortgage 50:50). One day after buying the property they decide to sell and to their dismay find out the house has decreased by £10k. This is split 99:1 - e.g. Person A gets £89,100 (a loss of £9,900), person B gets £900 (a loss of £100). You could argue that if Person A would expect a larger slice of the pie should house prices rise, they should also expect to lose more should they fall.

Tokmon

Exodi said:

I find there are logical 'challenges' with many types of DoT scenarios.

Some off the top of my head (obviously extreme examples but they are to highlight the point) -

A fixed split - those who contribute more do not get more for their investment should house prices go up
(e.g. person A puts in £99k, person B puts in £1k - both pay mortgage 50:50). One day after buying the property they decide to sell and to their suprise find out the house has increased by £100k. This is split 50:50 - e.g. Person A gets £149k (50% increase on their deposit), person B gets £51k (5000% increase).

A variable split - those who contribute more are exposed to more risk in negative equity scenarios
(e.g. Person A puts in £99k, person B puts in £1k - both pay mortgage 50:50). One day after buying the property they decide to sell and to their dismay find out the house has decreased by £10k. This is split 99:1 - e.g. Person A gets £89,100 (a loss of £9,900), person B gets £900 (a loss of £100). You could argue that if Person A would expect a larger slice of the pie should house prices rise, they should also expect to lose more should they fall.

You've used percentage increase in the first scenario and actual loss in £'s in the second scenario just to try and make both look bad. If you had used percentages for both the second one would be shown to be fairest.