Unequal Shares - Is this correct?

IS2

I'm just about to complete on a house with my SO. I will start by saying I've read the previous forum posts back-to-front which has informed a lot of this post, so go easy on me!

Figures:

Property: 209,000
Person 1 (P1): (me) - 39,215
Person 2 (P2): 2,585
Mortgage: 167,200

Context:

- Essentially I'm putting in the deposit (and will have to off-the-bat spend another 10k+ for repairs as my SO can't afford it), but my SO is putting her portion down to take advantage of her Help to Buy bonus and have her name on it with me, so it's ours for affordability. Affordability-wise, despite my high deposit and being able to make any repayments on my own more than fine, I can't buy on a single income

- For reasons I won't go into (yes I know how serious buying a house is with someone) I want to see how things go with SO over the next year or two. If things don't work out, my SO is fine with me taking on all payments & equity and her staying on the mortgage for remainder of 5 year fixed term - by which time I'll have enough equity to take on the mortgage on my single income anyway. It's important to mention that at this stage, getting on the ladder and getting the property is extremely important to me regardless 

- Initially we drew up a deed of trust (DOT) to give deposits back, with equity then being 50/50 on anything after that - as we intended to to pay the mortgage 50/50. 

- Now with the current situation, we are exploring other options. Currently we've agreed that we will get our deposits back and I will get 100% equity, whilst we see how it goes. In this time, I'll pay all repairs and my SO will continue to pay 50% of the mortgage as she would have to rent regardless. However, this is not a long-terms solution of course and with this suggestion, something isn't sitting quite right with me about it, although she's happy with it.

I've since read about % shares being the better solution on MSE. This would allow our deposits to rise/fall based on any gains, which is more fair for my deposit. However, we would like it to be easy for me to take on all equity and payments if we decide to part ways during the fixed term. So the whole '58.76% to person 1 & 41.24% to person 2' in the event of sale becomes someone moot, as we both have no intention to sell if the worst should happen. Is there a way to make this easier should we split?

New proposal for DOT:

Part 1: 

Unequal shares are set up as per the value of the investment initially put into the property via deposit + 50% of the mortgage 

If property is sold, money is split, before debts & fees (mortgage/solicitors fees etc) according to the % unequal shares agreed

Any remaining debt or fees will then be paid for by both person 1 & person 2 individually out of their money from sale

Property cannot be sold without both agreeing (no force of sale)

Part 2:

If P1 & P2 split before end of the mortgage P2 agrees P1 can buy her proportion of equity at original cost, based on her deposit and repayments so far and will take on 100% of future equity. E.G if split in two years time, P2 has paid 588/2 * 24 = 7056. P1 pays P2 this sum and makes 100% of repayments of future mortgage, with 100% equity being granted to him going forwards.

--
- Would the above proposal work?
- Would it be fair for both of us?
- Would it be easy for us to split day 1 and neither of us lose out (no this won't happen, but I know people here say it needs to work out day 1, year 1, year 5, year 20 etc especially if I'm putting in a big deposit)
- If this does work would it even be fair that I would 'buy out' my SO for all payments she had made towards the mortgage, considering she would have had to pay more than half the mortgage to rent anywhere and couldn't have got such cheap payments without my significant deposit gaining that rate? Essentially if we parted, she would have lived rent/mortgage free? I also would have spent lots in repairs. She's fine not getting anything back for this period, but I want whatever is fairest for both of us.

london21

From this you are depositing 93.8%
The SO is depositing 6.2%

Personally I will save up and try and get the money to own 100%.
What they will own is so small not sure worth the stress. 

IS2

london21 said:

From this you are depositing 93.8%
The SO is depositing 6.2%

Personally I will save up and try and get the money to own 100%.
What they will own is so small not sure worth the stress. 

How would I be depositing 93.8%? I thought  my deposit + half of mortgage equates to my input being 58.76%? 

At this stage, I simply cannot pass the affordability (despite only being 15k off deposit-wise), therefore, regardless if we're both happy that I would buy it on my own, it can't really happen at the moment. Plus it would delay everything and also make my SO coming on the deed way more complicated in future

theoretica

While you have currently no plans to force a sale, I think it unfair to include that as a clause -if everything went horrendously wrong and you couldn't get a mortgage in your name alone for instance, but neither of you wanted to be in the same county as the other...  But also, do you need her permission to buy her out if she wants to stay part owner?

I think it makes sense to think separately about the house increasing in value and decreasing. Doesn't need to be the same formula that works in both situations!

getmore4less

If they are paying 1/2 the mortgage they should get the benefit from that share.
Your proposal they have to give that up which is not fair.

Don't forget to include the buying costs in the shares owned.

If you are providing cash for initial repairs include those as well as part of the total costs and share of deposit.

On selling or working out shares should be after cost but before mortgage.

Then you take off 1/2 the outstanding mortgage from each share.

IS2

getmore4less said:

If they are paying 1/2 the mortgage they should get the benefit from that share.
Your proposal they have to give that up which is not fair.

Don't forget to include the buying costs in the shares owned.

If you are providing cash for initial repairs include those as well as part of the total costs and share of deposit.

On selling or working out shares should be after cost but before mortgage.

Then you take off 1/2 the outstanding mortgage from each share.

Getmore4less, I was hoping I'd bump into you as I've read a lot of your comments. You seem to know your stuff, but I do find some of it hard to follow, so would appreciate if you could elaborate a little further. 

- On P2 having to give up their share (your first point). They would like nothing to do with the house if we part. We're both on the same page on that point. What is the fairest way to address this you are suggesting? She pays 0 towards anything? What we are trying to avoid here is a legal situation in which we decide to part ways and then have to sell, because we don't have a good mechanism in place for me to buy her out. 

- Noted on including repair money as total costs. 

- Your points are all based around selling. If things don't work out, we both specifically don't want to sell, but for me to take on the property. If we did split, how would we navigate this? I just pay her back her shares of repayments so far? 

- Why do you think it's fair that I have to buy her out when she would have been living rent free essentially? This places the financial burden directly on me to support her accommodation for the entire time, despite this not being the case in any other accommodation scenario?

IS2

theoretica said:

While you have currently no plans to force a sale, I think it unfair to include that as a clause -if everything went horrendously wrong and you couldn't get a mortgage in your name alone for instance, but neither of you wanted to be in the same county as the other...  But also, do you need her permission to buy her out if she wants to stay part owner?

I think it makes sense to think separately about the house increasing in value and decreasing. Doesn't need to be the same formula that works in both situations!

- I think the point there is after the initial year or two of seeing how it goes, we don't want a legal situation in which I've got 40/50k+ tied up in a house and I'm forced to sell the house to buy her out. 

- On the permission point, that's what we've tried to include on the point about P2 agreeing to be bought out. I thought this point made it a simple fact that if we parted ways, her portion is up for sale for me to buy out by default? 

- On the point about house prices increasing/decreasing, from what I've read a % split works in both ways. Do you have an alternative suggestion? My head is spinning with all of the options here and I know it's a pretty uncommon situation to be buying a house an having a 'see how it goes' period.

london21

IS2 said:

london21 said:

From this you are depositing 93.8%
The SO is depositing 6.2%

Personally I will save up and try and get the money to own 100%.
What they will own is so small not sure worth the stress. 

How would I be depositing 93.8%? I thought  my deposit + half of mortgage equates to my input being 58.76%? 

At this stage, I simply cannot pass the affordability (despite only being 15k off deposit-wise), therefore, regardless if we're both happy that I would buy it on my own, it can't really happen at the moment. Plus it would delay everything and also make my SO coming on the deed way more complicated in future

If you add the morrgage amount then yes it is 58.76% and 41.34% but morrgage is not own equity it’s debt.

I say this because just as an example if you had to force a sale, the morrgage will be paid off and you share what is left in which case initial deposit plays a big part.

getmore4less

london21 said:

IS2 said:

london21 said:

From this you are depositing 93.8%
The SO is depositing 6.2%

Personally I will save up and try and get the money to own 100%.
What they will own is so small not sure worth the stress. 

How would I be depositing 93.8%? I thought  my deposit + half of mortgage equates to my input being 58.76%? 

At this stage, I simply cannot pass the affordability (despite only being 15k off deposit-wise), therefore, regardless if we're both happy that I would buy it on my own, it can't really happen at the moment. Plus it would delay everything and also make my SO coming on the deed way more complicated in future

If you add the morrgage amount then yes it is 58.76% and 41.34% but morrgage is not own equity it’s debt.

I say this because just as an example if you had to force a sale, the morrgage will be paid off and you share what is left in which case initial deposit plays a big part.

Servicing the debt that bought a share is equivalent to owning that share(less that share of the debt)

Simple example 

100% interest only  mortgage shared 50:50 obvious owned 50:50.

One person put £1 deposit they suddenly own 100% if you don't consider the debt and what it bought.

Common error thinking secured debt is magically different to any other method of obtaining the cash.

Pixie5740

IS2 said:

theoretica said:

While you have currently no plans to force a sale, I think it unfair to include that as a clause -if everything went horrendously wrong and you couldn't get a mortgage in your name alone for instance, but neither of you wanted to be in the same county as the other...  But also, do you need her permission to buy her out if she wants to stay part owner?

I think it makes sense to think separately about the house increasing in value and decreasing. Doesn't need to be the same formula that works in both situations!

- I think the point there is after the initial year or two of seeing how it goes, we don't want a legal situation in which I've got 40/50k+ tied up in a house and I'm forced to sell the house to buy her out. 

- On the permission point, that's what we've tried to include on the point about P2 agreeing to be bought out. I thought this point made it a simple fact that if we parted ways, her portion is up for sale for me to buy out by default? 

- On the point about house prices increasing/decreasing, from what I've read a % split works in both ways. Do you have an alternative suggestion? My head is spinning with all of the options here and I know it's a pretty uncommon situation to be buying a house an having a 'see how it goes' period.

Meanwhile your partner has spunked her HTB bonus and any other FTB benefits by buying a property, paying half the mortgage payments and walking away with nothing. Why do you think that contributing something to the deposit and paying half the mortgage is the same as living rent free if you had to buy out her share of the property?

ElwoodBlues

Your suggestion is particularly unfair on your SO - your partner wasting her HTB/deposit and paying half the mortgage REPAYMENTS, but you retain all the benefit. She'd be taking on all the responsibility of a mortgage, but missing out on any of the potential rewards. You seem to be focussing on not letting your SO live 'rent free', whilst you want exactly that for yourself.

DoT should stipulate what proportion (%) of the initial equity (deposit+essential repair costs) you both own, plus how any future equity is shared (or negative equity), i.e. in proportion to the proportion of repayments. So if you both do what you're saying you will the equity will be split 50/50. But it should be flexible enough to cover any variations - what if one of you decides to overpay etc.

So it should be deposit equities give you 23.5%, and SO 1.24%. Then any future additional equity based on your split of the mortgage payments.  The only thing that might, arguably, be fair is to split any negative equity 50/50, rather than on a % share of your deposits.