Interest in the property, declaration of trust, sole owner living with partner

jamescast

I need some advice. I am in the process of buying a property. I will be the sole owner, only my name on the deeds, mortgage, my deposit etc. My girlfriend will be living in the property and I am happy to her to contribute to the mortgage payments, this means she will have an 'interest in the property'.

What do I need to get to protect my investment? I have been looking at a 'declaration of trust' and am looking for confirmation that this is the correct document to get written up?

The following example are the terms we both agree on:

In the event of separation, my partner will need to be paid back what she has paid into the mortgage, plus the percentage of what she has paid against the whole property from the increase in value.

For example

She has paid 10k of 100k (total cost of property) = 10% of total cost

Property is valued at 20k increase therefore she would be also be paid 2k (10%).

Total owed to her would be 10k (- interest paid of mortgage) + 2k. To pay her out.

Is a 'declaration of trust' the one to go for? We only need the above and no further detail around who gets material possessions etc.

Many thanks for reading

getmore4less

Major flaw in that.

eg £100k house 50% deposit and 50% mortgage and she pays it all at a rate of 2% over ~20years.
house doubles 

in 20 years common sense says you own 50% £100k each

but she will have paid £61k(£11k interest) of mortgage payments

the calculations say OH get (£61k/£111k) 55% or £55k of the increase + the £50k
you get £95k she get £105k


if she pays the mortgage her interest should be in the share that bought she has in effect put in £50k cash just happens to be paying interest on that.

for a more typical case in line with your example.

eg £100k house 10% deposit 90% mortgage that's £45k's worth for her 1/2 of the mortgage or 45%.

Property goes up 20%  £120k, 45% of that is £54k less 1/2 the outstanding mortgage which is £45k or less depending how much has been paid off 

min buyout is £9k  (45% of the 20% increase)


interest paid should not be use in the calculations  that's the cost of the borrowing and has nothing to do with the property or equity.

jamescast

Thanks very much for the reply.

Sorry, I haven't given enough detail to you. I understand the flaw but this would never be the case in our situation. I will be paying the deposit and most of the mortgage, her amount will be minimal. We are not jointly applying for the mortgage, it will be my investment only and she will have a slim interest in the property.

Lets say house is 100k, I pay off 50% with my deposit, 50k remains. On the remaining 50k, we pay it off over 10yrs not taking the interest into account I pay 30k she pays 20k (20% of original value). House goes up 20k. Since I have paid 80% and she has paid 20% wouldn't that be the split on the 20k increase (4k for her, 16k for me)?

I need to know the correct mechanism for securing my investment so each of us gets our fair share. I don't know if a 'declaration of trust' would cover it?

Is there an easier way? For example something that just states my interest is 80%, her interest is 20%. The only problem being here if we separate before the 10yr term is over she would be getting more than what she has paid?

TBagpuss

I think you need to be clear whether everything she is paying counts as a contributions to the equity - obviously in most cases, a significant proportion of the mortgage is interest, so you can pay £100 towards the mortgage but only reduce the debt by £50.

A fixed percentage is definitely simpler but as you say it does mean that in the early years if you split she would get more out than she put in. 

One option is to define your original percentage (e.g. 20% if you have paid a deposit of 20%) and to define the percentages you will each be entitled to of the balance.

e.g. if the plan is that you will pay 70% of the mortgage and she will pay 30% then your declaration can state that on sale  the mortgage is cleared, then you get  a lump sum equal to 20% of the property value,  then any balance is split 70/30 in your favour.

You may also want to get a cohabitation agreement drawn up which can be a bit more detailed than the declaration of trust and can also cover things such as whether you would have 'first refusal' to buy her out in the event of a split, make clear whether or not any other contributions would affect ownership (or state explicitly that they wouldn't, unless there was a further written agreement) 

jamescast

TBagpuss said:

I think you need to be clear whether everything she is paying counts as a contributions to the equity - obviously in most cases, a significant proportion of the mortgage is interest, so you can pay £100 towards the mortgage but only reduce the debt by £50.

A fixed percentage is definitely simpler but as you say it does mean that in the early years if you split she would get more out than she put in. 

One option is to define your original percentage (e.g. 20% if you have paid a deposit of 20%) and to define the percentages you will each be entitled to of the balance.

e.g. if the plan is that you will pay 70% of the mortgage and she will pay 30% then your declaration can state that on sale  the mortgage is cleared, then you get  a lump sum equal to 20% of the property value,  then any balance is split 70/30 in your favour.

You may also want to get a cohabitation agreement drawn up which can be a bit more detailed than the declaration of trust and can also cover things such as whether you would have 'first refusal' to buy her out in the event of a split, make clear whether or not any other contributions would affect ownership (or state explicitly that they wouldn't, unless there was a further written agreement) 

Thank you. That is a good option, defining the original percentage then stating the split on the remainder. Maybe this is the easiest way going forward and won't make it complicated. Yes, I may be at a loss but not at an extreme.

I've looked a little bit into cohabitation agreements but they seem to cover detail we are not worried about (share of bills, material possessions and so on). But I do intend to keep the property if separation occurs, something we have agreed on.

I essentially want a declaration of trust to say how the property is divided if we separate and if it happens then I get to keep the property and pay her out. I'm unsure if a declaration of trust covers this?

jamescast

Surely if I am the sole owner and it's all in my name then all I have to do is pay her out and not have to sell? Based on the assumption there will be no children involved and I can afford to pay her out.

getmore4less

jamescast said:

Thanks very much for the reply.

Sorry, I haven't given enough detail to you. I understand the flaw but this would never be the case in our situation. I will be paying the deposit and most of the mortgage, her amount will be minimal. We are not jointly applying for the mortgage, it will be my investment only and she will have a slim interest in the property.

Lets say house is 100k, I pay off 50% with my deposit, 50k remains. On the remaining 50k, we pay it off over 10yrs not taking the interest into account I pay 30k she pays 20k (20% of original value). House goes up 20k. Since I have paid 80% and she has paid 20% wouldn't that be the split on the 20k increase (4k for her, 16k for me)?

I need to know the correct mechanism for securing my investment so each of us gets our fair share. I don't know if a 'declaration of trust' would cover it?

Is there an easier way? For example something that just states my interest is 80%, her interest is 20%. The only problem being here if we separate before the 10yr term is over she would be getting more than what she has paid?

Now you have changed the calculations.

If you are paying the mortgage of £50k 30:20 then she owns 20% less the outstanding share of the  mortgage at any time you cash out.

That works and is fair whenever the split happens.

If you don't want them having an interest don't take any money.

There is no she gets more in the early days she gets the proportion of any increse she has been paying for and the capital paid off the mortgage.

jamescast

Thank you, this helps and I now know what I want the declaration to state. Will a declaration of trust be sufficient?

Should there be a note added stating she does not wish to reside in the property in the event of separation, just what is owed?

Thrugelmir

Don't treat the money she gives you as anything else other than rent. 

jamescast

Thanks, I have considered this also. Would I still need to get something written up to ensure she does not claim an interest in the property in the event of separation?

thegreenone

Okay, I'm probably being far too simplistic but...... wouldn't it be easier for you to pay the mortgage from your sole account and then you both contribute to a joint account for bills.  That way, in the event of separation, it's clear that you have paid all the mortgage and the house is yours.  Your girlfriend will have paid the equivalent of rent and isn't entitled to anything. 

I realise similar has been said above.  Are you sure you want to do this as you seem to be veering towards the relationship to fail.