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• ro2778
• By ro2778 7th Mar 18, 10:37 PM
• 91Posts
• 31Thanks
ro2778
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

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:

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
Originally posted by ro2778
Last edited by ro2778; 10-03-2018 at 8:49 AM. Reason: for brevity
Page 1
• steampowered
• 7th Mar 18, 11:48 PM
• 2,508 Posts
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steampowered
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
• By ro2778 8th Mar 18, 12:06 AM
• 91 Posts
• 31 Thanks
ro2778
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
• 8th Mar 18, 8:11 AM
• 32,051 Posts
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getmore4less
"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.
Last edited by getmore4less; 08-03-2018 at 8:14 AM.
• agrinnall
• 8th Mar 18, 9:01 AM
• 20,167 Posts
• 15,889 Thanks
agrinnall
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
• 8th Mar 18, 9:25 AM
• 9,449 Posts
• 10,452 Thanks
AnotherJoe
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?
Originally posted by ro2778
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,
Last edited by AnotherJoe; 08-03-2018 at 9:29 AM.
• ro2778
• By ro2778 8th Mar 18, 10:32 AM
• 91 Posts
• 31 Thanks
ro2778
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.
Originally posted by getmore4less
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!
Last edited by ro2778; 09-03-2018 at 9:42 PM.
• ro2778
• By ro2778 8th Mar 18, 10:49 AM
• 91 Posts
• 31 Thanks
ro2778
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!
Last edited by ro2778; 09-03-2018 at 9:42 PM.
• steampowered
• 8th Mar 18, 11:28 AM
• 2,508 Posts
• 2,435 Thanks
steampowered
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.
Originally posted by ro2778

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
• 8th Mar 18, 1:35 PM
• 32,051 Posts
• 19,226 Thanks
getmore4less
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.
Originally posted by ro2778
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.
Last edited by getmore4less; 08-03-2018 at 1:37 PM.
• steampowered
• 8th Mar 18, 2:46 PM
• 2,508 Posts
• 2,435 Thanks
steampowered
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.
Originally posted by getmore4less
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.
• ro2778
• By ro2778 8th Mar 18, 5:34 PM
• 91 Posts
• 31 Thanks
ro2778
I agree it would be my preference to treat capital repaid and interest paid as the same. Taking the example above of shared ownership, where person 1 pays 50k in cash and person 2 takes out a 50k mortgage. I think it’s unethical for person 1 to live in the house they can’t afford on their own and not have to take into account the financial contribution person 2 makes towards their mortgage interest. Although this isn’t relevant to us because we will take out a joint mortgage.
• getmore4less
• 8th Mar 18, 8:30 PM
• 32,051 Posts
• 19,226 Thanks
getmore4less
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.
Originally posted by steampowered

You can agree anything you want but if one person puts up their 50% as cash and the other borrows 50%(does not matter how) then to own anything other than 50% going forward is bonkers.

if you start counting interest towards equity then the higher the rate the more the borrower gets to own, no incentive to pay off capital just stay interests only and slowly take over all the equity.

You borrow to buy 50% of a house that's what you own just because you have to pay interest does not change that.
if you bought 100% that does not get bigger because you pay interest, neither should the 50% you bought.
• getmore4less
• 8th Mar 18, 8:46 PM
• 32,051 Posts
• 19,226 Thanks
getmore4less
I agree it would be my preference to treat capital repaid and interest paid as the same. Taking the example above of shared ownership, where person 1 pays 50k in cash and person 2 takes out a 50k mortgage. I think it’s unethical for person 1 to live in the house they can’t afford on their own and not have to take into account the financial contribution person 2 makes towards their mortgage interest. Although this isn’t relevant to us because we will take out a joint mortgage.
Originally posted by ro2778
Persons 2 contribution is the capital borrowed, the interest is because they don't have the capital and have to borrow the money. to sugest that 1 should contribute to the interest without 2 giving back on the capital injection from 1 is not equitble.

One solution is person 1 lends person 2 £25k towards their deposit, equal £25k deposits, you have a joint mortgage for the other £50k.

2 owes 1 £25k on terms as agreed.

You have a much bigger problem if part way through the who pays what changes.

the way you are trying to tie equity debt and payments just breaks down when you do an analysis of the algorithm for all combination.
• ro2778
• By ro2778 8th Mar 18, 8:57 PM
• 91 Posts
• 31 Thanks
ro2778
I understand so the formula has two parts
(1) deposit and overpayments buy equity as per the original value of the house
(2) remaining equity is determined once remaining mortgage is repaid based on the mortgage repayments for each party during ownership

edit: although thinking about (2) I guess the equity from mortgage repayments will have to be calculated each time the house is remortgaged to account for changing interest rates so...

1. Initial house value determines equity from deposits and mortgage overpayments
2. Equity gained during first mortgage* divided by ratio of mortgage repayments
3. Equity of next mortgage divided by ratio of mortgage repayments
etc... either until sale or mortgage repaid

* a mortgage is treated as a period of fixed interest, so when the interest rate changes that is for the purposes of calculation a new mortgage
Last edited by ro2778; 08-03-2018 at 9:16 PM.
• steampowered
• 8th Mar 18, 10:31 PM
• 2,508 Posts
• 2,435 Thanks
steampowered
You can agree anything you want but if one person puts up their 50% as cash and the other borrows 50%(does not matter how) then to own anything other than 50% going forward is bonkers.
Originally posted by getmore4less
Imagine a situation where a couple put down a 10% deposit on a £500k property.

Each Partner contributes half of the deposit. But Partner 1 makes all of the mortgage repayments.

Under your calculations, Partner 1 would have paid £475k (plus mortgage interest) and Partner 2 would have paid £25k.

Yet under your model both Partners own 50% each!

if you start counting interest towards equity then the higher the rate the more the borrower gets to own, no incentive to pay off capital just stay interests only and slowly take over all the equity.
If the rate is higher, the borrower would have had to pay more money. So it seems perfectly fair for that borrower to get a higher share of the property!!!

I don't really understand why you are distinguishing between capital and interest. £10 is £10. If the £10 goes towards the mortgage, I think it should be credited!!!!
• getmore4less
• 8th Mar 18, 10:39 PM
• 32,051 Posts
• 19,226 Thanks
getmore4less
Total wrong understanding of how equity and serving debt works

Overpayments don't buy equity they reduce debt.
• getmore4less
• 8th Mar 18, 10:52 PM
• 32,051 Posts
• 19,226 Thanks
getmore4less
the example being used was 100k with 50k deposit and 50k mortgage where one pays all of it.

Imagine a situation where a couple put down a 10% deposit on a £500k property.

the deposits buy 10% 5% each

Each Partner contributes half of the deposit. But Partner 1 makes all of the mortgage repayments.

1 owns 5% the other paying the mortgage owns 95%

Under your calculations, Partner 1 would have paid £475k (plus mortgage interest) and Partner 2 would have paid £25k.

Yet under your model both Partners own 50% each!

see above, it does not matter what the person pays on the mortgage they own 95% and the mortgage gets paid off from that share if sold.

If the rate is higher, the borrower would have had to pay more money. So it seems perfectly fair for that borrower to get a higher share of the property!!!

I don't really understand why you are distinguishing between capital and interest. £10 is £10. If the £10 goes towards the mortgage, I think it should be credited!!!!
Originally posted by steampowered
They are very different £10s one buys an asset the other is rent on the money to buy an asset.

if I buy 3 apples for £1 and you use a payday loan to buy another 3 apples for a £1 and have to pay back £2 we each own 3 apples.

if we pooled the money to buy 6 apples why do you now own 4 apples and I only own 2 apples?
• ro2778
• By ro2778 9th Mar 18, 12:02 AM
• 91 Posts
• 31 Thanks
ro2778
This is quite frustrating...

Should I just think about it like this:
1) Deposit = % equity
2) Mortgage debt on sale 2a) a certain % is paid back to the bank if not fully repaid
2b) a certain % has been paid off by the 2 owners and this becomes equity such that

Total Equity = Deposit Equity + Mortgage outstanding (repaid on sale) + Mortgage paid down (during ownership) + Capital gain / loss: therefore...

Owners' equity = Total equity - Mortgage outstanding (repaid on sale) therefore...
Owners' equity = Deposit Equity + Mortgage paid down (during ownership) + Capital gain / loss

3) Deposit Equity is calculated at the start
4) Mortgage paid down for each owner needs to take account of mortgage repayments, lump sum overpayments and interest paid (although not quite sure how)
5) Capital gain / loss is what remains and should be divided between owners based on their overall contributions to both deposit and servicing the mortgage based on the original house value?
• getmore4less
• 9th Mar 18, 6:36 AM
• 32,051 Posts
• 19,226 Thanks
getmore4less
This is quite frustrating...

Should I just think about it like this:
1) Deposit = % equity

that money buys a bit of the property x% and y% if there are 2 of you

that % never changes

2) Mortgage debt on sale 2a) a certain % is paid back to the bank if not fully repaid

The mortgage buys the rest(100%-x%-y%) what ever is left of the mortgage on sale all come out of that share not the full 100%

2b) a certain % has been paid off by the 2 owners and this becomes equity such that

That's the free equity from which the distribution comes but does not represent the share owned

Total Equity = Deposit Equity + Mortgage outstanding (repaid on sale) + Mortgage paid down (during ownership) + Capital gain / loss: therefore...

Owners' equity = Total equity - Mortgage outstanding (repaid on sale) therefore...
Owners' equity = Deposit Equity + Mortgage paid down (during ownership) + Capital gain / loss

3) Deposit Equity is calculated at the start

yep as above
4) Mortgage paid down for each owner needs to take account of mortgage repayments, lump sum overpayments and interest paid (although not quite sure how)

You ignore the interest it is not relevant to the equity ownership or the debt due

5) Capital gain / loss is what remains and should be divided between owners based on their overall contributions to both deposit and servicing the mortgage based on the original house value?
Originally posted by ro2778
Forget that the mortgage is secured on the property and gets first dibs on the cash that is not how you descibe the ownership and share of the debt.

try this both parties getting the borrowings from the banks of mum&dad.

If they borrowed 1/2 the cash each(no deposits needed)
Clearly they own 1/2 each and when they sell they get 1/2 each and pay off their debt s from that.

parents for one says you can have the money interest free
the others persons parents others wants 5% interest.

You are saying the one paying 5% interest owns more of the house.

WHY?

lets go one stage further parent one wants no interest or payments
so they pay nothing,

Then according to 5. As soon as person 2 pays their first £1 they own 100% of the place.

changing the lender(to a bank or the parents securing their loans) or using your own cash makes no difference you own the bits you pay for with cash or debt. what/how you pay for your debt makes no difference to what you own just what you owe on the money you borrowed.

do the apple example with houses
you buy 2 houses for the same amount one pays cash one borrows the money clearly they own 100% of their own houses.

Combine resources too get a bigger house and suddenly the one borrowing money owns more than 1/2.
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