Unequal Shares - Is this correct?

IS2

ElwoodBlues said:

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. 

Her HTB is extremely negligible - much like the deposit. In a year or two if we split in proposal, SO would get literally everything back as it stands. I'd then also pay all mortgage repayments from then and take on the mortgage officially after fixed term to avoid ERP. There's no fixation on 'rent free' here and I don't understand where you get the implication that I want to live rent free at all, when I'm the one fronting most of the cash and offering to buy everything out if it doesn't work out. I'm just considering the prospect that if I were to buy out the SO after 12 months for example, would it be fair that she would get all of her money back? Essentially coming out 12 months later better than she would have been living literally anywhere else and to boot, at the cost of me paying it? Again, so far this has been my own suggestion for me to repay everything, not hers (as I'm looking for fairest way to do this), but I think it's perfectly reasonable to seek counsel on whether this is actually indeed fair for me also... This is my first time too!

So in your scenario, what would be the best way of splitting/buying SO out without selling the house? 

Pixie5740

IS2 said:

ElwoodBlues said:

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. 

Her HTB is extremely negligible - much like the deposit. In a year or two if we split in proposal, SO would get literally everything back as it stands. I'd then also pay all mortgage repayments from then and take on the mortgage officially after fixed term to avoid ERP. There's no fixation on 'rent free' here and I don't understand where you get the implication that I want to live rent free at all, when I'm the one fronting most of the cash and offering to buy everything out if it doesn't work out. I'm just considering the prospect that if I were to buy out the SO after 12 months for example, would it be fair that she would get all of her money back? Essentially coming out 12 months later better than she would have been living literally anywhere else and to boot, at the cost of me paying it? Again, so far this has been my own suggestion for me to repay everything, not hers (as I'm looking for fairest way to do this), but I think it's perfectly reasonable to seek counsel on whether this is actually indeed fair for me also... This is my first time too!

So in your scenario, what would be the best way of splitting/buying SO out without selling the house? 

How would your partner "literally" get everything back?  The mortgage interest is gone, that's an expense neither of you are seeing back.

If you want to see how things go for the next two years why are you getting a 5 year fixed term mortgage instead of a 2 year fixed?

I could be wrong but I think if you didn't need your partner's income to pass affordability you wouldn't even be contemplating buying a property with her.  You are coming across as using her to fund your property ownership dreams.

getmore4less

What would you consider fare if her share of the mortgage was cash?

Would she just get her cash back or a share of the value?

IS2

Pixie5740 said:

IS2 said:

ElwoodBlues said:

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. 

Her HTB is extremely negligible - much like the deposit. In a year or two if we split in proposal, SO would get literally everything back as it stands. I'd then also pay all mortgage repayments from then and take on the mortgage officially after fixed term to avoid ERP. There's no fixation on 'rent free' here and I don't understand where you get the implication that I want to live rent free at all, when I'm the one fronting most of the cash and offering to buy everything out if it doesn't work out. I'm just considering the prospect that if I were to buy out the SO after 12 months for example, would it be fair that she would get all of her money back? Essentially coming out 12 months later better than she would have been living literally anywhere else and to boot, at the cost of me paying it? Again, so far this has been my own suggestion for me to repay everything, not hers (as I'm looking for fairest way to do this), but I think it's perfectly reasonable to seek counsel on whether this is actually indeed fair for me also... This is my first time too!

So in your scenario, what would be the best way of splitting/buying SO out without selling the house? 

How would your partner "literally" get everything back?  The mortgage interest is gone, that's an expense neither of you are seeing back.

If you want to see how things go for the next two years why are you getting a 5 year fixed term mortgage instead of a 2 year fixed?

I could be wrong but I think if you didn't need your partner's income to pass affordability you wouldn't even be contemplating buying a property with her.  You are coming across as using her to fund your property ownership dreams.

Well my current suggestion was that I'd pay back all of her payments? They would include her capital + interest payments + all deposit? AKA literally anything she has put in - paid back. 

The nuances of the situation aren't important - we want to buy a house together, we're just trying to figure out the best exit plan that's most flexible, should it not work out. Looking for advice, not judgement - as I'm sure you can appreciate, there's a lot more to people's situations than you will ever be aware of. Please bear in mind, I'm showing up hear, literally asking people with experience their own approaches to making this a good setup for everyone...

Do you have any suggestions of how we could setup this up with it being fair and easy to split day 1, year 1 or year 10? 

getmore4less

being fair is you buy a share on the property and get that share when you exit.(less any debt owed to 3rd party)

The issue seems to be can that be achieved without selling so you can keep the place.


That will be down to do you have enough saving or borrowing power to  make the pay off within an agreed time frame.


Are you going to be happy with your pay everything back plan if the places has dropped 20% in value?

jkrbec

I think the fair way is % based on your contributions at the time of exit… whatever that may be for either side 

getmore4less

jkrbec said:

I think the fair way is % based on your contributions at the time of exit… whatever that may be for either side 

Depends what you mean by contributions and  % of what neither of which you have defined.


In most cases that breaks down when you test the algorithm, that should work for all cases, using some boundary cases. 

 

ElwoodBlues

IS2 said:

So in your scenario, what would be the best way of splitting/buying SO out without selling the house? 

You should split the equity based on the contribution each of you has made - so you both share in any gains (or loses). You're basically asking your SO to take a gamble but the best base is that they get back their stake - they'll never take a share of the 'winnings', but will be exposed to the risk. Yes, you're buying a house primarily to live in, the financial investment is secondary. But your SO would be left treading water - if you split in 2/5/20 years and all she gets back is her 'stake', but (if) house prices have increased by X% then they'll be at a major disadvantage.

So if you split, you'd need to get the house valued at that point, and then share any equity proportional to your contributions. If that means you can't afford to take on the mortgage on your own then tough luck. But there's so many variables it's difficult to predict whether or not you'll be in a position to be the sole name on the mortgage in several years time.

Don't forget your DoT needs to cover for every scenario fairly. So what you're proposing might work ok if you split in 2 years (or even in 5 years). But what if you split in 20 years? House prices have at least trebled over the last 20 years. Whilst that's no guarantee of any increase over the next 20, history suggests increase is most likely.

Why should you get a clause that you can buy SO out, but not the reverse? What if SO inherits a lump sum, or wins the lottery. Would you be ok for SO to just pay you off what you've paid in?

theoretica

One way of working it out - if the house value rises.

At the moment of purchase you will have paid X% of house, your partner Y% and the bank Z%.  Say (9% you, 1% partner and 90% bank to make the concept easy).

So look at the new higher value -10% of it was bought with deposits, 90% with a mortgage.  9% of it to you is your initial deposit back + a the share of the equity it bought.  1% to your partner - likewise.  Then the 90% bought with the mortgage was equal between you both financially and that neither of you could have bought without the other - pay off the bank and split the remaining equity equally.  It's not a neat percentage split or amount paid but it acknowledges both contributions and the difference between the deposit and the mortgage.

getmore4less

theoretica said:

One way of working it out - if the house value rises.

At the moment of purchase you will have paid X% of house, your partner Y% and the bank Z%.  Say (9% you, 1% partner and 90% bank to make the concept easy).

So look at the new higher value -10% of it was bought with deposits, 90% with a mortgage.  9% of it to you is your initial deposit back + a the share of the equity it bought.  1% to your partner - likewise.  Then the 90% bought with the mortgage was equal between you both financially and that neither of you could have bought without the other - pay off the bank and split the remaining equity equally.  It's not a neat percentage split or amount paid but it acknowledges both contributions and the difference between the deposit and the mortgage.

It is a neat %. (54%:46%)

The mistake many make is taking the mortgage off first then trying to work out a split, when you take you share of the debt from your share of the property.

If there is not enough then there ends up being a residual debt between the parties.