Tenants in common % percentage split ??

nyck

We cant work out the % split to put on the forms for the solicitor

Son and partner buying a house £285K

Son putting in £80000k

Partner £8k

Paying mortgage etc 50:50

We can work out if they split up he would take £80k and her £8k and split the difference 50:50

But how can they put that as a % percentage on a form …We've tried various ways and it never seems quite right

the best we got was him 62.615% her 37.385% but wasnt right we dont think ??

thanks

Exodi

If determined to do it in one function:

Mortgage is £197k (285 - 80 - 8).

You could therefore consider that each is contributing half the Mortgage plus their respective initial contributions.

E.g. your son is 80 + (197/2) = £178.5k (~62.63%)

Partner is 8 + (197/2) = £106.5k (~37.37%)

The caveat to this method is that they are expected to discharge their respective share of the mortgage first in the event of a sale. And they will need to settle the other expenses somehow (either equally or add the costs into the calculation).

This would mean if they came to sell in 5 years, if as assume the house has increased in value by £50k to £335k, and the outstanding mortgage is £160k, there would be equity of £175k.

Your son would get 335*62.63% = ~£209.8k, less his half of the mortgage (£80k) = ~£129.8k
Partner would get 335*37.37% = ~£125.2k, less their half of the mortgage (£80k) = ~£45.2k

There are plenty of other ways to do this. One of the most common and simplest I see is that the initial contributions are stated as fixed sums and returned first, with the remaining equity divided equally.

E.g. son gets £80k, partner gets £8k, rest of equity split 50:50 (or however they intend to split the mortgage).

There are some downsides - the most obvious being that due to the initial contributions being static amounts, they are not benefitting from any house price appreciation. There should also be some consideration of what would happen if there isn't enough money to return the initial contributions in full (in fact you should consider all scenarios when deciding these sorts of things).

One thing I will say is solicitors are generally keen to keep these simple for pragmatic reasons (complexity can cause confusion, and the last thing you want is a judge needing to interpret a complicated extended internal rate of return compound calculation. This forum can be guilty of that sometimes.

As you are paying a solicitor, your son should be speaking to them about his expectations - he is paying them (extra for a deed of trust) to facilitate his instructions. I'm surprised they've asked for a simple %.

nyck

https://forums.moneysavingexpert.com/discussion/comment/82085183#Comment_82085183

Thanks for taking your time on this

Your figures are similar to mine 62.63% and 37.37%

I was in a rush as we were due to go out , I can now see where we went wrong .

Say they cleared the mortgage in 4 years and Sold for £300k

£300k@62.63% =£187890

£300k@37.37%=£112110 as difference of £75780

I had it in my head as hes put in £80k he should get £80k+ more than her come any sale , which it should .be £72k ( £80k his - £8k hers = £72k )

We needed it as percentage for the solicitor forms

Exodi

https://forums.moneysavingexpert.com/discussion/comment/82085360#Comment_82085360

Understood, though a bit surprised the solicitor requires it defined solely in % terms. Will they be defining other situations (e.g. who is responsible for maintenance - it's worth thinking about, often times when one person only owns ~37.37% they could make a convincing argument that they should only be responsible for ~37.37% of future repair/renovation costs). Also things like a procedure for a future sale (e.g. do they each have right of first refusal, how will the property be valued, etc). Sorry, now look at me overcomplicating it… where was I… oh yeah
I've held deeds of trust in the past that were defined in static amounts so it's not like it's not possible, they don't seem very flexible.

But if it achieves what you are after, then it doesn't matter! Good luck to your son and partner, and good on you all for getting a deed of trust in place (though keep in mind it can be nullified by marriage unless you specifically state the deed of trust is made with a 'in contemplation of marriage' clause - something else to speak to a solicitor about).

I have a friend who, despite putting in significantly disproportionate amounts into the purchase of the property were convinced not to own as tenants in common, because 'they weren't planning on breaking up'… yes, yes, extremely naive. Unfortunately this story does not have a happy ending - less than 18 months later they had broken up and half the significant initial contribution was shared in equity with their now-ex. It was a friend of my friend so I don't know for certain where the big deposit came from, but I would wager there is some very angry/disappointed family members…

Albermarle

I am with the solicitor on this . You could take the view ( for simplicity reasons) that they probably will not split up, so all this agonising over an exact % ( to two decimal places) or applying equations, is possibly pointless ( and not very positive/romantic)

As long as something is in place to stop your son losing half his £80K if they do split up, in the short/medium term

Say 75;25 to be reviewed after a couple of years.

doodling

Hi,

If you express this as a fixed percentage then you will not achieve fairness over the life of the mortgage, unless mortgage contributions are split in the same ratio as the deposits.

If both parties aren't happy (particularly the one being treated unfairly) then you won't get agreement on the split. At the very least, both parties should review their ownership position and contributions made at the start and end of the mortgage and confirm that they are happy with both positions. I think that if this is done then one party (hopefully both!) will have a view on the correctness of a fixed split.

My suggestion is for the deed to confirm the percentage equity at the start of the mortgage and confirm that percentage ownership is calculated according to the total contributions made by each party taking into account both their deposit and their contributions over the life of the mortgage. At the point of sale, the mortgage (and selling costs?) would be settled first and the rest (including if it is a debt) shared according to their percentage ownership.

I agree that worrying about interest rates, the proportion of a mortgage payment which is interest vs..capital and net present value is over the top - stick with pure unadjusted monetary contribution.

As others have said, stuff like maintenance / enhancements to the property need to be considered as well. One way of doing this would be to treat payments made in this respect the same as mortgage payments.

If you do go down this path then both parties need to be clear about keeping records of who has paid what. If it is just a 50/50 mortgage split then it is simple but if one party pays £3k for a new boiler then that might need to be recorded.

_Penny_Dreadful

Your son’s £80,000 is a gift from family isn’t it?

Both your son and his partner should seek independent legal advice on the deed of trust as it should benefit both parties, not just your son. If the solicitor drafting the deed of trust will only accept a percentage split then they need to find a new solicitor.

nyck

https://forums.moneysavingexpert.com/discussion/comment/82086712#Comment_82086712

Thanks for everyone's input

The £80k is his and £8k hers the rest is being funded / loaned by myself and his nan .But they are getting a Day 1 mortgage to repay us back albeit probably be more day 2,3 or 30etc , so i suppose me and nan will be exposed to a bit of risk until the mortgage comes through

As this is a auction property everything is a bit rushed getting the money together.They will both have extra money to input in a few weeks , sale of shares etc so the percentage will change again once the mortgage is being completed , so thats when the deed of trust will be finalised .They just need some figures % to put on the solicitor forms probable in preparation of a deed of trust .

Bigphil1474

I'd go with the 63/37 split as above. For my house, I own 35% to my partners 65% as I put a smaller deposit in but will be paying 100% of the mortgage. In the event that we split up before the mortgage is paid, that amount comes off my share.

I think the only fair way to do it is for each initial deposit to grow with the value of the house, the same way that money would grow if it was just stuck in a savings account. Obviously the house could also lose value.