commensurate share deed

ro2778 · 7 March 2018 at 11:37PM

Edit: Trying to figure out a formula to record ongoing unequal mortgage contributions in the form of initial deposit, repayments and overpayments. The formula below still has some flaws

ro2778 wrote: »

Formula to derive equity due on sale, in a floating share / commensurate share deed
1) Equity due = Sale price - (End balance for total mortgage remaining inc. early repayment charge + costs associated with sale inc., solicitors fees, estate agent fees, housework in response to buyers survey) * Proportion of Equity due to Owner 1/2
2) Proportion of equity due to Owner 1 or 2 = e.g., for Owner 1 = (Percentage of total equity for owner 1 / (percentage of total equity for owner 1 + percentage of total equity for owner 2)) * 100
3) Percentage of total equity for Owner 1/2 = Equity from deposit + Equity from Mortgage 1 + Equity from Mortgage 2 etc... + Equity from Mortgage x
4) Equity from deposit for Owners 1 & 2 = e.g., for Owner 1 = (Owner 1's Deposit / Purchase Price) * 100
5) Equity from mortgage x for Owner 1/2 = e.g., for Owner 1 = (End capital paid by Owner 1 / house purchase price)*100
6) End capital paid e.g., for Owner 1 = Cumulative capital paid during mortgage x i.e., Owner 1's contributions to repayments inc. overpayments - interest calculated each month then summed for duration of Mortgage x

And the element that makes it commensurate or floating is the fact that 6) End capital paid is calculated each month, therefore there is the flexibility for 2 owners to change their contributions each month, so long as between them they are keeping up their repayments of course!

Here is the formula applied to a house bought for 328995, where two owners initially pay equal deposits of 7.5% each (£24,677.50) and share the mortgage. But then after just one year owner number 2 stops paying the mortgage and owner number 1 takes up all the flack.

14 years in total and 4 mortgages later the mortgage is paid off:

https://drive.google.com/open?id=1lRz6JrpE9ULEIhtyAiIss2OEphh4XmcJ

for simplicity the model doesn't change the value of the house price but the facility to change this exists on the spreadsheet

.................Total Equity | Equity O1:O2 | Equity Due
Owner 1 | 91.05 ........|..... 91.05% ....|..£299,535
Owner 2 | 8.95 ........|........8.95% .....|..£29,460

credit: all the mortgage values were extracted from mortgage schedule calculator spreadsheet

steampowered · 8 March 2018 at 12:48AM

This sounds sensible.

You will have to think about the practical issue of how you keep a record of each partner's mortgage payments over time.

It is all very well saying in an agreement that your shares of the property depend on your respective contributions, but could be quite messy if you have to trawl through 20 years of bank statements to work out who paid what.

The other thing you need to think about is that you cannot sell the property without the consent of your co-owner unless you get a court order. So even if she owned only a tiny % of the property, if you wanted to sell and she refused to move, you would have difficulty selling.

ro2778 · 8 March 2018 at 1:06AM

Consent to sell is something I hadn’t considered. I might ask the solicitor if it’s possible for either of us to give notice to sell, say a month for every year we have owned the place (minimum 3 months) so long as the mortgage isn’t in a deal period and if it were subject to early repayment charges we would only be able to sell if both of us agreed. If that’s possible...?

I’ve kept track of finances for years so as for contributions of each party it’ll just be a matter of a new sheet in the master spreadsheet and saving bank statements. In fact she requested that I record all our spending in the buying process so that we can go 50:50 so the mechanism already exists and the habit well practiced.

getmore4less · 8 March 2018 at 9:11AM

"One way of calculating how much of the sale proceeds (after clearing the mortgage and deducting estate agents!!!8217; fees)

There are some flaws with the rest of that method the main one it does not account for the concept of if you pay the debt you own that share.

AT any point in time you own the bit you own + the bit you service the debt, if you change the amount of debt you service you should do a revaluation of the equity at that point as if you sold and bought.

A good way to show how the model is flawed is to use interest only debt.

if you by 50:50 but at some point in the future you start paying all the mortgage, the model they use has you gaining nothing from the mortgage payments as they don't pay off any capital, if the mortgage was 50% of the property at the time you took it over you should get all the value increase on that share from that time.

Another way is to keep ownership at 50:50 but manage the debt separately.

You start out equal deposits and paying the mortgage 50:50.
(on paper you have 2 loans one each)

If they stop paying theirs their interest rolls up and your debt goes down quicker because you are paying their interest for them.

This works till your debt becomes zero which may not be that long then as you are still paying, their debt to the property keeps getting bigger and eventually starts to eat into their initial deposit and will overtake all their equity.

If you pay for maintenance or improvements 1/2 gets added to their debt, if there is enough mortgage you can use that or just have a paper debt that they owe you.

if you run some scenario using this model you may find that entering any agreement where you are paying everything is doomed.

much easier to model the debt as this is not based on the value of the property at any of the time you change how you pay it.

agrinnall · 8 March 2018 at 10:01AM

I think you should have posted on the Relationships board first for some advice on whether you should buy anything together, let alone a house, as you don't sound at all confident about the longevity of this relationship.

AnotherJoe · 8 March 2018 at 10:25AM

ro2778 wrote: »

I'm planning to buy a house with my partner which may or may not last long-term and she has also expressed a wish to quit her job, stay at home and look after the dogs (we currently have no dogs), and take half my money with varying degrees of seriousness. She's reasonable most of the time but lets face it, she probably means it and I was trying to figure out the best way to arrange ownership of a new place we are buying together. As we are starting out 50:50 I was going to go down the joint tenants route however on reflection, the alarm bells are ringing and I'm now thinking of using a commensurate share deed but I was surprised to search the forums and not find any threads on commensurate share deed or floating deed.

< big snip >
I should say, I have read some threads about unequal shares and see that some of you try to offer relationship advice, which I'm not after. This is a totally emotionless exercise for me, I just want to be fair and hopefully we will go 50:50 all the way but if suddenly she decides to quit working and just wants me to look after her, that's okay too but I would want the ownership of the house to reflect our financial contributions as we aren't married and there are no kids in the equation. Also it occurs to me as we will no longer be joint tenants a will is needed and she tore up her last will in a big argument last year... should it be possible to ask the solicitor who drafted it to make another copy or as she destroyed all her copies is it a case of that will is no longer valid? :eek:

It's unclear to me which of you is the least delusional.

Start by buying something small together, say a bag of M&Ms (just a small one), and see how you go,

ro2778 · 8 March 2018 at 11:32AM

getmore4less wrote: »

There are some flaws with the rest of that method the main one it does not account for the concept of if you pay the debt you own that share.

AT any point in time you own the bit you own + the bit you service the debt, if you change the amount of debt you service you should do a revaluation of the equity at that point as if you sold and bought.

A good way to show how the model is flawed is to use interest only debt.

if you by 50:50 but at some point in the future you start paying all the mortgage, the model they use has you gaining nothing from the mortgage payments as they don't pay off any capital, if the mortgage was 50% of the property at the time you took it over you should get all the value increase on that share from that time.

I'm not sure I follow if we buy a 100k house and after 3 years paying 50:50 I have paid 35k and she has paid 35k and the remaining mortgage is 50k then when we sell we each have a 50% share.

Okay, but then at this point we remortgage interest only but I pay only the mortgage. Then 5 years later I have paid another 20k but the mortgage is still 50k and we sell. At this point I have paid 55k and she has paid 35k so my share is 61% and hers is 39%. Therefore, even though I paid all of the interest only mortgage when the house is sold I will get the larger share of the equity.

edit: how wrong I was!

ro2778 · 8 March 2018 at 11:49AM

If I consider the commensurate share deed as explained in the OP. Another interesting question is what weight should each type of contribution carry? Obviously money paid into the deposit and mortgage / interest repayments should be weighted as 1. However, I'm not sure I agree with the guardian article where it says all contributions to the house such as paying for an extension or home improvement should carry the same weight, after all, buying a kitchen for 20k wouldn't lead to that much value being added to the house. There is probably a hierarchy of what home improvements / extensions would add the most value all the way down to what adds the least. I suppose the formula could get very interesting. Perhaps extensions should be weighted at 0.8 and home improvements at 0.5.

Then my partner could be smart and suggest I pay for the home improvements and she will focus on the mortgage! Haha, trying to model human behaviour. It's a hoot isn't it!? Perhaps there would have to be a clause which says there's not allowed to be a significant disparity between the proportion of contributions in different weight categories.

edit: no, no no no no!

steampowered · 8 March 2018 at 12:28PM

ro2778 wrote: »

Consent to sell is something I hadn’t considered. I might ask the solicitor if it’s possible for either of us to give notice to sell, say a month for every year we have owned the place (minimum 3 months) so long as the mortgage isn’t in a deal period and if it were subject to early repayment charges we would only be able to sell if both of us agreed. If that’s possible...?

I’ve kept track of finances for years so as for contributions of each party it’ll just be a matter of a new sheet in the master spreadsheet and saving bank statements. In fact she requested that I record all our spending in the buying process so that we can go 50:50 so the mechanism already exists and the habit well practiced.

You can write that into your contract with your partner.

But in practice a sole signature on transfer deeds won't be accepted by buyers or by the land registry, regardless of what your contract says.

So if your partner still refuses to sign the transfer deeds, she is in breach of contract, but you are still stuck.

getmore4less · 8 March 2018 at 2:35PM

ro2778 wrote: »

I'm not sure I follow if we buy a 100k house and after 3 years paying 50:50 I have paid 35k and she has paid 35k and the remaining mortgage is 50k then when we sell we each have a 50% share.

Okay, but then at this point we remortgage interest only but I pay only the mortgage. Then 5 years later I have paid another 20k but the mortgage is still 50k and we sell. At this point I have paid 55k and she has paid 35k so my share is 61% and hers is 39%. Therefore, even though I paid all of the interest only mortgage when the house is sold I will get the larger share of the equity.

Interest is the cost of borrowing the money you did not have you can't count that towards the total paid it just does not work.

eg. You buy a £100k house £50k each one with their own cash the other with cash they borrowed.

You own the place 50:50

That never changes no matter how long or how much you pay for the debt.

get the simple stuff sorted in your head before trying the more complicated ones where things change over time, like who pays what and when and making improvements.

steampowered · 8 March 2018 at 3:46PM

getmore4less wrote: »

Interest is the cost of borrowing the money you did not have you can't count that towards the total paid it just does not work.

eg. You buy a £100k house £50k each one with their own cash the other with cash they borrowed.

You own the place 50:50

That never changes no matter how long or how much you pay for the debt.

There is no legal distinction between money paid as interest and money paid as capital on a mortgage.

Co-owners are able to agree how their ownership is split using whatever mechanic they would like. This can all be set out in a 'tenancy in common agreement' or whatever the Op wants to call it. Ownership shares do not have to be linked to the amount paid on day one.

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commensurate share deed

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