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

theoretica

BabyYoda22 said:

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.

One way of looking at it would be that you mentally split the mortgage into two unequal portions - yours and his.

you own 40k outright and 80k with the mortgage  120k total

he owns 40k outright and 240k with the mortgage 280k total

so you split the property 30% to 70% and when it is sold 1/4 of the remaining mortgage comes out of your 30% and 3/4 comes out of his.  However, this gets more complicated if the proportions you contribute to the mortgage change.

Annisele

If you want easier maths, you could decide that you'll always own the place 75%/25% from the beginning. That does leave you the problem of what to do with about the deposit, which is in practice 50/50, but you could always pretend that you've given him a separate loan for the deposit.

So, for example:

• Total property price £400k.
• His deposit £60k, funded party with his own £40k cash and partly with a £20k loan from you (at whatever interest rate you agree).
• Your deposit £20k, from cash you already have.
• Mortgage £320k, paid 75% by him and 25% by you.
  
• You decide to sell after 10 years, when the outstanding mortgage is maybe £225k (I made that figure up; it'd be in the right ballpack if your interest rate was 3.5% but I doubt it'll be that low).
  

Now say the property has fallen in value to £100k (I think that's hugely unlikely, but it's worth checking that whatever agreement you come up with will still work in extreme scenarios.

In that case, in order to sell you'd have to come up with an extra £125k to give the bank (the difference between the value of your house and the mortgage). You own 75/25, so you could say that he has to come up with £93,750 for the bank, and you have to come up with £31,250 for the bank. But he also has to repay the loan you gave him - and £20k plus interest at, say, 3.5%, would be in the region of £28k. So you could choose that he has to pay a total of £121,750 to get out of the arrangement, and you have to pay £3,250.

In a completely different scenario, let's say the property has increased in value and is now worth £1 million.

In that case, after you've repaid your mortgage you get £775k to split between you. He gets 75%, but he still has to repay your loan (which, with interest, is now maybe £28k). So he gets maybe £553,250, and you get £221,750.

But given that you want all of this to be unofficial, it doesn't really matter what you agree now. If you're still being cooperative when you come to sell, you can just change your minds. If you're not being cooperative, then "unofficial" is unlikely to matter.

theartfullodger

You think it's maths.  (I have a degree int...). Sorry, but it's about relationships. 

eddddy

BabyYoda22 said:

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. 

There is no simple percentage - the percentage will change every month.

To illustrate...

• If you sell up on day 1 - you'll have each put in £40k - so you'd get 50% each

• if you sell up after 12 months - you'll have paid £43.6k and your partner will have paid £50.8k - so you'd be due 46.19% and your partner would be due 53.81%

• if you sell up after 24 months - you'll have paid £47.2k and your partner will have paid £61.6k - so you'd be due 43.38% and your partner would be due 56.62%

And assuming nothing changes, by the time you get to the end of year 8

• ... you'll have paid £68.8k and your partner will have paid £126.4k - so you'd be due 35.25% and your partner would be due 64.75%

So it's not a simple percentage, but it's possible to construct a formula to work it out. (But this assumes no changes in interest rates / monthly mortgage payments.)

lookstraightahead

What happens if, say, you put in a new kitchen? Or do some renovations?

eddddy

lookstraightahead said:

What happens if, say, you put in a new kitchen? Or do some renovations?

Then go back to plan A.  https://forums.moneysavingexpert.com/discussion/comment/79849072#Comment_79849072

Ramouth

The way I would look at is, you each pay your deposit which is x %.  You then have the mortgage making up y %.  You are paying y/4, your partner is paying 3y/4.  So the total property percentages are 2x + y/4 + 3y/4 and your individual contributions are x + y/4 and x + 3y/4.  So, if your each putting in 20% at the start (apologies I am too lazy to go back and check) then your contribution will be 20 + 60/4 = 35% and his would be 20 + (60x3)/4 = 65%.  From this you would each pay back the relevant (1/4 or 3/4) of the mortgage debt.  If you really want to make things fair you would also pay for any renovations using the same proportions,

Where this really falls down though is sweat equity.  My partner pays more into our mortgage, but I did a huge amount of work on our last property contributing significantly to it’s increase in value so we both consider it fair that we split the equity equally.