Fiancee's Mortgage, My Deposit....

MONK£Y

Hi, after a bit of advice.... We are buying a house with the mortgage in my girlfriends name , as i already have a house in mine. I am paying the deposit and will be paying half of the bills every month. We are going to get an agreement drawn up to save any possible grief in the future, as to who gets what if we split. Do we go for an amount or percentage??.... Apart from this are there any other complications we should know about...???

rozeepozee

In my view, the best agreements are ones where you have thought out every possible hitch and problem so you both know what to expect. I assume you are going to get this agreement drawn up by a solicitor? It's likely to be in your interest to agree a percentage rather than an amount to be repaid to you if the property is sold or if your girlfriend buys you out. If you are putting in 20K on a 100K house, I assume you would prefer to have a 20% share of it years down the line, rather than just getting your 20 grand back. When you say half the bills, do you mean half the mortgage as well? In which case (working on the same proportions) you would be looking at a 60% share to you on sale. How are you going to pay for additional expenses such as maintenance? Logic suggests you should pay for these using the same percentages. What if one of you want to sell in the future? (For example, if you split up or simply want to reinvest your money elsewhere). Will you want to give your girlfriend a reasonable time to buy you out. If she buys you out rather than you selling and dividing the equity along the lines of your percentages, how will you agree a value? What if the property has fallen in value???? Do you bear the loss in accordance with your percentages? These are a few of the things you need to think about. Fairness says treat it like a business venture and try and set aside the emotion involved with buying a house with a romantic partner. You may want to consider getting seperate advice. I know this might seem an unnecessary expense but it may reap benefits long term. In any case, make sure you get your solicitor to confirm all their advice in writing. This is best practice and you are paying for the advice after all. Any problems down the line, you will know what you were advised to do at the point of purchase and.... can sue your solicitor ultimately if the advice was poor. Good grief! Sorry to sound so negative. It's best to be prepared for the worst case scenario and trust that it'll turn out all good. Best of luck!

MONK£Y

Thanks for the reply..It makes sense what you're saying

Thanks Again.

Jay1b

I would just like to add...

If you put down the £20K on the £100K house, but you sell it after you've just paid off another £10K - making your combined share of the house £30K, obviously your want more then the 60%.

MONK£Y

Say for instance..the house goes up £10'000 and we sell. The mortgage gets paid off from the sale..I get my £20'000 back plus 60% of the £10'000..is that right..?

rozeepozee

That's entirely up to you and your girlfriend but what you describe is, in essence an interest free loan to your girlfriend. Fine if you're happy with that. And if you pursue that logic, if the house goes down by 10,000, you still get your 20 grand back and then 'share' the losses equally. The other alternative is for you to put in your 20 grand as a proportion of the value of the house. The example I gave before on the basis of a 100K property was that your 20K plus your contributions to half of the 80K mortgage gives you a 60% share and your girlfiend a 40% share. So if the property doubles in value in 10 years time, you would deduct the cost of the mortgage (and other costs, e.g. sale costs, if that's what you agree) and split the equity 60/40. If the housing market goes down, you share the losses equally in the same manner. Does anyone else have any other permutations?

padders_2

paying half of the bills every month

What do you mean, "bills". If you don't mean mortgage that means you own 20% of the house and you should get 20% of whatever it sells for. The remainder would then go to the gf who would use that money to pay of any mortgage she has. Effectivly, you are buying 20%, she is buying 80% on a mortgage.

If you are paying half the mortgage it works out differently. Firstly, you sell the house, for say £100k. You immediatly get £20k (20%). You then use the remainder (£80k) to pay of the remainder of the mortgage. Once you have done that you split anything thats left equally between you.

It makes no difference if the price falls or rises in value with these calculations, clearly you just do badly if it falls. The only thing you need to decide is if one of you wants to keep the house how you are going to value it. Thats the hardest aspect and you definitely want to come up with a method you both agree with for that.

GDB2222

There is one more twist to this tale.

Suppose you buy for £100k on the basis of a 60/40 split of the property value but a 50/50 split of the mortgage, then prices drop 20% and the house is only worth £80k? You then split up and sell the house. The bank is ok, because their £80k mortgage is secured against the whole house including the £20k deposit you put down. So, the house is sold, and there is nothing left over after paying the bank.

Now look at it more closely. Your share of the house value is 60% of £80k, ie £48k, whilst your gf's share is £32k. So, after paying the bank off in full, she owes you £8k. How is she going to pay this? If she cannot afford a deposit, she is going to have trouble paying you your £8k, so you may as well write it off.

Really, this is a 'cannot lose' situation for your gf. If house prices drop, you carry the can, whilst if house prices rise she benefits. Ask yourself whether you are sufficiently fond of her to want to give her a free 'put option' on the house? Bear in mind that you are jointly and severally liable for the mortgage, so you have to pay her half of the mortgage if she defaults.

IMHO, you either want to make a truly long term commitment to your gf or you should buy the house on a 50/50 basis with her having to find her share of the deposit. Although you can improve the position by documenting it as Rozee says, there are still inequalities in your positions, and that is only appropriate if you are very, very committed to each other on a long term basis.

By the way, I showed 20% fall in the figures above, but if there is any fall in prices it works the same way. Your gf's share of the house value ends up being less than her share of the mortgage.

GDB2222

Sorry - just read original post - mortgage in girlfriend's name, so you are not liable if she defaults, you just risk losing your deposit.