Tenants in Common but with unequal % ownership

RoystonV

My daughter (FTB) and her boyfriend (non-FTB) are looking to buy their first house together with a joint mortgage. In respect of a deposit on the new property, he plans to use the equity on the sale of his flat (c.£60k) and my daughter will match this through a combination of personal savings and a gift from myself i.e. they will both be contributing equally to funding the purchase deposit and all fees, including the £10,000 stamp duty for which, ironically, only he is liable.

Furthermore, he has suggested than rather than simply pool joint monthly net salaries of around £6,700 (which he considers 'old school' but is the way we did things at their age), he'd prefer to open a joint account into which each of them would pay a proportionate amount of their monthly income to cover the mortgage and all bills, leaving each of them with their own disposable income. 

The problem for me arises over the proposed terms of ownership of the new property. Whilst they are happy to commit to being 'tenants in common', he wants ownership to be split 60/40 in his favour since, as the higher earner, he will be paying a greater proportion of the mortgage, conceding that when they hit a 'life milestone' (his words) such as marriage or the birth of a child - when she might arguably be contributing even less for a while - they would simply change the agreement to 50/50. 

What disadvantages might such an uneven split arrangement create for my daughter and am I right to be overly concerned about his approach here?

vacheron

We did something similar when we first moved in but for different reasons. We also split the bills according to income, but this was so that each person would put in the same amount of effort (time) to pay for the mortgage, bills etc. 

I had to work 1 day a week for the mortgage, and so did my partner, each worked 2 hours for electricity, 4 hours for groceries, etc. 
It also worked because if one person cut down on say electricity usage, both of us would see an increase in our disposable money the next month, also if one person recieved a pay rise, say 10% they would pay more, to the bills, but would also see that 10% boost to their disposable money. 

However, because we valued our "effort" as an equal commitment, regardless of salary, any equity increase in the house during our tenure would have been shared equally.

However, his plan as described is fundamentally not fair as at the beginning the equity will be 50/50 and will only creep up slowly with each higher mortgage payment he makes. If their salaries are currently 60/40 too, they would never reach this ratio of equity, even when the house is fully paid off (due to the initial equal deposits).

Lets hope that the house price doesn't fall early on, as if it did, he may regret this strategy.

I can see his thinking as relationships do fail, especailly in the early years, so to not consider an exit plan to some degree would be naive, but what he is proposing in relation to the equity split is unfair. 

RoystonV

vacheron said:

We did something similar when we first moved in but for different reasons. We also split the bills according to income, but this was so that each person would put in the same amount of effort (time) to pay for the mortgage, bills etc. 

I had to work 1 day a week for the mortgage, and so did my partner, each worked 2 hours for electricity, 4 hours for groceries, etc. 
It also worked because if one person cut down on say electricity usage, both of us would see an increase in our disposable money the next month, also if one person recieved a pay rise, say 10% they would pay more, to the bills, but would also see that 10% boost to their disposable money. 

However, because we valued our "effort" as an equal commitment, regardless of salary, any equity increase in the house during our tenure would have been shared equally.

However, his plan as described is fundamentally not fair as at the beginning the equity will be 50/50 and will only creep up slowly with each higher mortgage payment he makes. If their salaries are currently 60/40 too, they would never reach this ratio of equity, even when the house is fully paid off (due to the initial equal deposits).

Lets hope that the house price doesn't fall early on, as if it did, he may regret this strategy.

I can see his thinking as relationships do fail, especailly in the early years, so to not consider an exit plan to some degree would be naive, but what he is proposing in relation to the equity split is unfair. 

Thanks vacheron, I appreciate your input here.

The sole reason I suggested gifting my daughter the money in the first instance was so the concept of uneven ownership would be dispelled from the outset but am I right in thinking that his 'majority' ownership (however slight) would also suppress her rights overall, particularly in terms of selling the property at a later date?

prowla

Are they both going to put 50/50 effort into household duties?

RoystonV

They do currently. However, my feeling is that if he thinks enough of her (which he assures her he does), why are they even having this conversation? If they're both bringing the same £'s to the table, why wouldn't ownership reflect that?

RoystonV

RoystonV said:

They do currently. However, my feeling is that if he thinks enough of her (which he assures her he does), why are they even having this conversation? If they're both bringing the same £'s to the table, why wouldn't ownership reflect that?

Apologies if this thread is veering into 'agony aunt' content; I really didn't mean it to. My over-riding concern is understanding how an unequal TIC split such as this might disadvantage the minority owner in the short, medium and long term.

springmagpie

Honestly this would be a "red flag" for me.

our_des

RoystonV said:

They do currently. However, my feeling is that if he thinks enough of her (which he assures her he does), why are they even having this conversation? If they're both bringing the same £'s to the table, why wouldn't ownership reflect that?

He's protecting himself and she's not bringing the same, you are topping her up to meet his portion. Look at it as if you were his parent(s), would you have the same thought?

None of us have a crystal ball to see what's going to happen in the future, they could well live a long and happy life together or 5 years down the line they may drift apart

housebuyer143

Well, if she is contributing less to the mortgage repayments then I think the proposal he has made it actually reasonable. But, if she wants to contribute the same, then it should be 50/50. It's actually refreshing for someone to be thinking about fairness down the road, if they get married/have kids and already be conceding to a change in ownership split. 

I personally don't think it's unfair and it seems like they have discussed it so they both have similar disposable incomes. It's what works for them though. 

She has no fewer rights owning 40% than she would 50%. He can't sell it without her agreement and can't override her decision, as it needs to be joint agreements to do anything as they are tenants in common. 

Bookworm105

why do you think it is unfair that the person paying more towards the mortgage should not own a greater share of the property? If 60/40 reflects the current contribution then TIC 60/40 it is.

The relative ownership share can always be amended again in the future via a new declaration/deed of trust if the relative income position changes 

DullGreyGuy

RoystonV said:

The problem for me arises over the proposed terms of ownership of the new property. Whilst they are happy to commit to being 'tenants in common', he wants ownership to be split 60/40 in his favour since, as the higher earner, he will be paying a greater proportion of the mortgage, conceding that when they hit a 'life milestone' (his words) such as marriage or the birth of a child - when she might arguably be contributing even less for a while - they would simply change the agreement to 50/50

Could she afford to match him on the contribution to the bills account and just have less money for herself? Would she want to stretch herself for another 10% share of the property?