Q I wonder if you can help. I’m struggling to put my practical head on in the midst of the romantic adventure that is buying my first home with my partner.
We’re going to own the house as tenants in common, which we’re both fine with, as we’re putting significantly different amounts into the deposit: I’m putting in 15% and he is contributing the remaining 85%. We are planning to pay the mortgage 50/50.
We’re about to get the declaration of trust written, but there are a few things I’m not sure of. We plan to put a lot of time into doing up the house and, at some point down the line, build an extension. As with the deposit, I’ll pay 15% and my partner 85% of the cost of the extension. Bearing all this in mind, if we do break up, will the increase in value be split 50/50 as per the mortgage payments or will I get back 15% and my partner 85%, as per the investment in the original deposit?
If the latter is the case, this feels a shame as the work (mainly time) put in to do up the house would have been a joint effort. I had thought that we would get our original deposit back, plus 50% of the increase in costs but now I am not so sure. Can you please help? JP
A It is sensible of you to have a deed of trust drawn up so that you can set out, among other things, what share each person owns, who is responsible for paying what and the procedure that should be followed when one or more of the joint owners want to go their separate ways. Having a deed of trust is especially important when, as in your case, each person is contributing differing amounts to the deposit, buying costs or mortgage repayments.
Most standard deeds of trust set out what each person will get back on the sale of the property either as fixed percentages or fixed amounts, or a mixture of both. In the simplest terms, you can say that if you contributed £1,500 to the deposit and your partner contributed £8,500, on the sale of the house – and after clearing the mortgage debt – you would get back your £1,500 and your partner his £8,500 with anything leftover being split down the middle. The problem with this approach is that it doesn’t take into account any increase in the value of the property. So instead, you can say that after paying off the outstanding mortgage with the sale proceeds, you would get whatever percentage of the purchase price your original contribution to the cash deposit represented when you bought the property.
So if you put £1,500 towards a house costing £100,000, your percentage share would be 1.5% and your partner’s 8.5% (to calculate the percentage, divide your cash contribution by the purchase price and multiply the result by 100). If you sold the house for £150,000, your share would now be worth £2,250 (1.5% of £150,000) and your partner’s £12,750. After deducting these amounts from what was left of the sale proceeds and clearing the mortgage, whatever remained would be split down the middle.
What a standard deed of trust does not address is the kind of situation you will find yourself in where uneven contributions are made over time – as with your intended contributions to the cost of the extension. The solution to this is to have a “floating deed”, also called a commensurate share deed, drawn up. Instead of giving fixed amounts or percentages, the deed sets out the formula to be used to calculate each owner’s share at the point the property is sold or one owner buys the other out. This kind of deed is also more appropriate for people who are contributing uneven amounts to the mortgage.
One way of calculating how much of the sale proceeds (after clearing the mortgage and deducting estate agents’ fees) is to add up the total contributions you have both made to the purchase and improvement of the property. Then you add up the contributions – which should include how much of the mortgage you have paid off – you have each made. You then calculate what percentage of the total contributions each of your individual contributions are. So if your contributions to the deposit, extension costs and mortgage debt paid off were, say, £15,000 but your partner’s were £35,000, the total contributions would be £50,000, making your percentage share of the sale proceeds 30% and your partner’s 70%.
Even with nominal house price growth we are talking pennies unless you are going into the half-decade, decade time horizon. There wouldn't even be enough investment growth to offset the expense to buy in the first place.
With prices ever-rising, and more equity involved as the mortage gets paid off... further down the line is almost more important. That's pretty obvious to me 
