How to work out ownership percentage when deposits are equal but monthly mortgage payments unequal

BabyYoda22

Me and my partner are looking to buy a house. We both have equal deposits but due to differences in salaries, I will pay 25% of the monthly mortgage payments and he will pay 75% of the monthly payments. 

We want to have an unofficial agreement to own fair percentages of the property based on what we’re contributing. 

Approximates:

Total cost of property = £400k

Deposit = 80k (both pay £40k each)

Mortgage = £320k

Monthly payments = £1200

So monthly I would pay £300 and he would pay £900.

Mathematically, is there a way to work out a percentage ownership split based on paying equal deposits but unequal monthly payments? (So like him 60% and me 40%) Or is it far too complex? We don’t know if we’ll own the property for 1 or 8 years; But want to work out if there’s a way to fairly split it when we do come to eventually sell it. 

It doesn’t seem right, after selling, to take back 40k deposits each and split the equality 25/75 as technically there could be a loss or little increase. He’ll of paid substantially more than me on a monthly basis so it seems wrong for him to come out worse off than me somehow. Maybe we’re missing the obvious maths. Hence my post. Thanks in advance. 

(Ps. We’re aware from a legal view we both own 50% and are both legally responsible for all the mortgage etc, this is more a private agreement between us. We also don’t want to put unequal amounts of deposits to make it a 25/75 split as the more money we put down the less interest we’ll pay which is why we want to still put in as much as we have each) 

The_Unready

Are you also going to factor in the monies that each of you will spend on bills, home improvements, food, etc?

Are you also going to add in a clause to uplift mortgage payments and equity based on annual pay rises for you both?

I'm assuming that your partner is looking at this as a long-term relationship, so I suggest you just pay the mortgage as you've suggested for now and get on with enjoying life together! 👍

_Penny_Dreadful

There are 100s of threads on the forum detailing the various ways the splits could be done. Have a search for some. 

However, if this is to be unofficial it seems pointless to worry about it. The equity shares really only matter when the relationship breaks down whilst you remain unmarried. At that stage things can easily become acrimonious meaning that whatever you’ve unofficially agreed goes out the window. Either get a Deed of Trust drawn up officially or don’t waste time trying to figure it out. Alternatively you could thrown caution to the wind and get married….shall I start hat shopping? 

eddddy

The_Unready said:

I'm assuming that your partner is looking at this as a long-term relationship, so I suggest you just pay the mortgage as you've suggested for now and get on with enjoying life together! 👍

I tend to agree with the above.

But if you are keen to make this a business relationship, perhaps a fair solution is as follows:

• Keep a tally of what each partner spends on the house - i.e. add together the deposit, mortgage payments, insurance payments, repair bills paid by each partner.

• When the house is sold, split the proceeds according to how much each partner 'invested' in the house.

For example, if after 8 years you add-up all the spending (including deposit and mortgage payments) and you find that:

• Partner 1 has spent a grand total of £188,237 over the 8 years (equivalent to 45.49% of the total spending)
• Partner 2 has spent a grand total of £225,540 over the 8 years (equivalent to 54.51% of the total spending)

Then when you sell in 8 years...

• Partner 1 gets 45.49% of the net proceeds of the sale
• Partner 2 gets 54.51% of the net proceeds of the sale

(If you want to make it even fairer, perhaps you should also take into account inflation / interest rates when adding up the spending. e.g. How much interest each partner has lost by putting money towards the house, instead of into a savings account.)

EmmyLou30

I guess the question that needs to be answered is why are you paying in differing amounts towards the mortgage? Presumably because he earns more than you. Couples often pay into the joint pot for all housing costs/bills/food/holidays etc based on a % of their income. So both of your pay in 50% of your salary for instance.....now for him that may mean he pays in more than you in actual monetary terms, but it affects you both in exactly the same way. So only fair the house gets split 50:50 when you sell up after you both get your £40k deposit back (you can have a solicitor write you up something to say you both get £40k back and any equity is then split 50:50). 

Everyone chooses to do it differently, it just depends what you both think is fair.  

theartfullodger

BabyYoda22 said:

How to work out ownership percentage when deposits are equal but monthly mortgage payments unequal

The percentages are whatever is agreed - in writing please! - between the parties.  Could be 50/50, 1%/99%, 99%/1%.... 

Not a situation I'd welcome for myself...

Depending on if partners are married, civil partnership, just living together then there are laws governing such matters if it gets to arguments & separation. 

I would suggest BOTH parties separately get legal advice over whatever is suggested by the other party. (Possibilities for dodgy business here..)

DullGreyGuy

BabyYoda22 said:

Mathematically, is there a way to work out a percentage ownership split based on paying equal deposits but unequal monthly payments? (So like him 60% and me 40%) Or is it far too complex? We don’t know if we’ll own the property for 1 or 8 years; But want to work out if there’s a way to fairly split it when we do come to eventually sell it. 

You just add up all you've each spent individually and in total. Divide your spend by the total spend gets you your percentage and apply this percentage to what you sell the house for. 

Running a household however is much more than just the mortgage and some aspects are about time invested in maintaining things. No matter what you agree now if you guys fall out there will always be scope for arguments... that he agreed to it because the chores were going to be split equally but actually they've had to spend 10 hours a week on DIY/maintenance or she agreed to it but when the payrise came she tookover paying for all the groceries and so that wasnt proportionally split so should be factored in etc.

I'm assuming this is a romantic partner rather than a business partner... I'd not fuss over it now as it'll all go out the window. If you really want a fixed solution then buy as tenants in common with a 75/25% split but then expect the debates over how all other things should be split

born_again

I'll just chuck this in here.
What happens when a little family member pops out & one party is not funding anything?

Because the courts would have a different view, to 100% v 0%

silvercar

born_again said:

I'll just chuck this in here.
What happens when a little family member pops out & one party is not funding anything?

Because the courts would have a different view, to 100% v 0%

Do you actually mean what you wrote, or do you mean one party is providing all the childcare while the other is earning outside the home?

DullGreyGuy

silvercar said:

born_again said:

I'll just chuck this in here.
What happens when a little family member pops out & one party is not funding anything?

Because the courts would have a different view, to 100% v 0%

Do you actually mean what you wrote, or do you mean one party is providing all the childcare while the other is earning outside the home?

What alternative interpretation is there? 

BabyYoda22

Thanks to everyone who showed interest! In all honesty, this was more of a maths question than a complicated relationship problem. 

I guess I just wondered if the maths could be done by a genius to work out a simple percentage from the start but I think it’s too complex. 

It seems the best way to do this would be by simply keeping a running tally of all contributions (deposit, mortgage, renovations and repairs) and then if we sell, split the shares based on a percentage of each of our total contributions. So we’ve agreed this is how we’ll work it. If my total paid is £40k and his is £60k, we’ll split it 40% and 60%. So thank you for those who suggested this. 

If anyone cares, here’s a little more context if you’re interested. I wasn’t planning to share this as it’s not relevant but was surprised at how interested people seemed so why not. 

We’ve been together 18 years, are incredibly happy and plan to be forever more. We’re also not having kids. We’ve owned a couple properties together already and have always contributed 50/50 and had equal shares of everything. It was an agreement we made years ago, and we’ve never once argued about money as we each spend our earnings outside of paying bills as we wish. 

We currently live mortgage free in a flat, but are looking to buy a forever home. The reason for us re-assessing how we do things with our next property, is since we last had a mortgage, my partner now earns significantly more than me and to afford the property we can jointly afford, I can’t continue the 50/50 split on my salary. So for us to live in our dream home, he will pay significantly more but I insisted we still have an agreement to split fairly, so should we sell one day, our shares would be a percentage of our contributions. 

Although we want things to be fair based on contributions, we’re really not over serious about it all. I was just intrigued about maths more than anything. All in all, we’re living our best life.