Contributions

moneysaver1978

My partner and I (unmarried) are in the process of buying a house (deposit split of 70/30) and as my salary is higher, I was thinking 60/40 for mortgage repayments however bills would be 50/50.

We are looking to get a deed of trust but trying to work out what's commonly done and also fairest for us both.

We have three questions:

• Emergencies (e.g. if boiler needs replacement): 50/50, 60/40, 70/30, or some other percentage?
• Projects (e.g. extensions, loft insulation, etc.): 50/50, 60/40, 70/30, or some other percentage?
• On sale, I assume we first get our deposits back and then whatever is left is split between us - 50/50, 60/40, 70/30, or some other percentage?

We will definitely get a solicitor to draw this up but curious what seems to work/not work.

Many thanks in advance!

jonnydeppiwish!

50:50 with deed for the amount you both put in

moneysaver1978

jonnydeppiwish! said:

50:50 with deed for the amount you both put in

Thanks for your reply! Are you saying 50/50 split on the sale of the house even though I might be contributing more towards the mortgage repayments? Also how does all this tie in with emergencies or house projects?

Schwarzwald

Apply deposit split to mortgage as well as all expenditures which will be fixed to the property , eg boiler and extension in your examples, i.e. 70/30

50/50 on all consumables, eg council tax and bills, as well as furniture, etc.

split future sales proceeds net of remaining mortgage deductions 70/30

if at one point you can no longer sustain the 70/30 split, rework the split then.

get right legal documents in place, others better positioned to advise which these are

Sarahspangles

moneysaver1978 said:

deposit split of 70/30, 60/40 for mortgage repayments, bills would be 50/50.

So is what you are saying is that there will be:

• a chunk of the house that you own 70/30,
• a further chunk that you will own 60/40 (representing the amount you’ve repaid on the mortgage), and
• a further chunk of the house that you are jointly and severally liable to pay for (because that’s how mortgages work)?

Or are you proposing to pay more of the mortgage but treat that chunk as ‘owned’ 50/50?

It seems fair that you should pay more for anything that maintains or increases the value of the house, in a proportion that reflects the proportion that you would ‘own’.

moneysaver1978

Thank you all for your replies but my apologies, I am none the wiser.

- I contribute 70% towards deposit
- I contribute 60% towards mortgage repayments
- Plus I think what you are saying: I _should_ contribute 70% towards property-fixed expenditures (e.g. boiler, extension, etc.)

The only 50/50 would be on the consumables (furniture, bills, etc.).

What would be the most fair split if/when we sell the house? 

Martico

If it was me, I'd keep the cost split for everything related to long term equity (deposit, mortgage split, capital improvements) the same, whether 70/30, 60/40 or 65/35. 
And day-to-day costs at 50/50.

Sarahspangles

moneysaver1978 said:

Thank you all for your replies but my apologies, I am none the wiser.

- I contribute 70% towards deposit
- I contribute 60% towards mortgage repayments
- Plus I think what you are saying: I _should_ contribute 70% towards property-fixed expenditures (e.g. boiler, extension, etc.)

The only 50/50 would be on the consumables (furniture, bills, etc.).

What would be the most fair split if/when we sell the house? 

The issue with your proposal is that the ‘fair split’ would need to be recalculated every time the mortgage is paid.  Assuming you want the 70/30 and 60/40 splits to feed through into the eventual pay back.

Example - house costs £200.  A puts in £70 and B £30.  The mortgage is for £100 over 10 years. 

In Year 1 A pays £6 of capital and B £4.  You also split the interest 60/40, but as that’s not becoming part of the value of the house you ignore it.  At the end of Year 1 A ‘owns’ £76 of the house, B £34 and the bank £90.  If the house is still worth £200, the £110 capital released on sale is split A 69% and B 31% (£76 and £34) to the nearest 0.1%

In Year 2 and 3 you repeat this and now A owns £88 and B £42 so the split is now A 67.7% and B 32.3%.  Obviously if the house value has changed the amount you get back is more or less than you put in, but you use the percentages - how much you own v what the bank owns, as the starting point then work out what was the split of payments.

You really need some kind of trust deed that explicitly captures how this will be handled, and how you will record contributions.  If one of you adds value because they are a whiz at DIY while the other is down the pub, how is that covered?  If one of you loses their job but uses their redundancy to pay off a chunk of mortgage (saving interest) how is that calculated?  You also need to factor in things like the frictional costs of purchase and sale - significant ‘up front’ costs.  Do you also split those pro rata?  What if you split, how is the one leaving paid out?

You can simplify things by sticking to 70/30 for everything to do with the capital value in the house and servicing the mortgage, but life happens - splits, job changes, babies, inheritance - and it will be less stressful if you think through some of the scenarios in advance.

Brie

complicated!  what happens if wages change a bit or significantly?  what happens if one is off on p/maternity leave? goes part time for child care?

more significantly what if the one paying less feels like they are contributing more to actually running the house?  this is obviously the argument in doing a 50/50 split between husbands and wives where the men are traditionally earning more but the women are doing the cooking, cleaning and childcare even when working full time.

Personally I think that a proportion for the down payment being noted so that in case of a split or sale of the property the appropriate amount does back to each party.   So if you bought a house for £100k and needed a mortgage of £50k you would be paying £35k of the down payment and your OH £15K.  So you would own outright 35% of the house and the OH 15%.  When you sell it for £200k you get back 35% so £70k and the OH £30k.  And then the rest would be split 50/50 due to ongoing contributions in cash and kind so £50k each.  

saajan_12

moneysaver1978 said:

Thank you all for your replies but my apologies, I am none the wiser.

- I contribute 70% towards deposit
- I contribute 60% towards mortgage repayments
- Plus I think what you are saying: I _should_ contribute 70% towards property-fixed expenditures (e.g. boiler, extension, etc.)

The only 50/50 would be on the consumables (furniture, bills, etc.).

What would be the most fair split if/when we sell the house? 

Fair is what you make it.. eg does teh lower earner also run mroe of the household? If you want to weight house ownership by the monetary contributions, then I'd look at how much you each 'buy' with your shares of the deposit + mortgage. Say £300k house, with 100k deposit and 200k mortgage. 
- You pay 70% ie 70k deposit + 60% ie 120k mortgage => 190k / 300k = 63% owned
- Partner pays 30% ie 30k deposit + 40% ie 80k mortgage => 110k / 300k = 37% owned

If you make any mortgage overpayments, then that should be in the 60/40 split. 
If you make any capital improvements eg an extension, that should be in the 63/37 split. 
If you sell, then the house value should be split 63/37. If there's still a mortgage balance remaining, then that should be split 60/40 from your respective shares. 

That way, you each get the capital appreciation/loss on the amount you invest, and pay the interest in the correct splits. However for the numbers involved, it might be easier to just do everything at a fixed % split eg 65/35? 

eddddy

Perhaps the most flexible approach is to keep a tally of what each partner contributes. Then add up a grand total when you decide to sell.

For example, if you add up the totals and turns out that you've contributed 63% of the total costs and your partner has contributed 37% of the total costs...

... maybe you get 63% of the equity (profit), and your partner gets 37%.

(And I guess any agreement should also mention that if there turns out to be negative equity, you cover 63% of the loss, and your partner covers 37%.)


But given the high levels of inflation at the moment, you should probably apply an 'interest rate' to payments.

As a simple example, let's say the property is sold in 2028 - you have made a payment of £1000 in 2023, your partner has made a payment of £1000 in 2027. The payment in 2023 is 'worth more' than the payment in 2027. (So you should add interest to the 2023 payment.)