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My new partner (7 years new!) are buying our first house together. We are both in our late 40s and have been divorced for some years. I have more equity to put down to purchase the house, but he earns more money. We are therefore setting up the property as Tenants in common, but how do we work out what is fair for us both? If the % of the house that I own reduces over time, that somehow doesn’t feel right, but it also doesn’t feel right that he is contributing more to the general budget. I’m not sure a property solicitor would be the best person to go to for advice?

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    "how do we work out what is fair for us both?" This is where marriage is so useful: there are defined rules and lots of case law on how to handle the distribution of property. Is there such a process in the UK for the unmarried? – RonJohn Feb 19 at 8:50
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    What is "fair"? This SE can give you the math to implement a given policy, or tell you whether or not a given policy will do what you want it to do, but the only "fair" we can really state with definity is when "partner equity" balances. – RonJohn Feb 19 at 8:55
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    So fair doesn't mean '50:50' here it seems – in which case, only the two of you can decide it between you. The property solicitor is not there for that anyway – their role is to make you aware of the legal implications of what you choose. – marktristan Feb 19 at 9:07
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    How do you split your living expenses generally? If you're living together and paying rent now how do you manage that? – GS - Apologise to Monica Feb 19 at 12:52
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    Friends of mine got married when they bought a flat because it was the easiest and cheapest way to solve the legal aspect. – Michael Feb 20 at 9:57
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Other answers advise you to get legal advice, and I agree that doing so would be advisable.

In an ideal world, I presume you'd each like to contribute equally and own a 50% share of the house at all times. So let's make it happen!

For simplicity in this answer, I'm going to assume some numbers. Let's say you're buying a £350,000 house. You have £100,000 to contribute to the deposit, and your partner has £50,000. The remaining £200,000 is being borrowed as a 25-year mortgage, at an interest rate of 4%. This has repayments of £1,056 per month, and I'll assume that you can afford to contribute £400/month to this, and your partner will pay the other £656. These figures mean you're paying 67% of the deposit, but only 38% of the mortgage repayments.

Now:

  • Before you buy the house, lend your partner £25,000. Now you each have £75,000 and can pay an equal share of the deposit.
  • Split equally, you would each be contributing £528/month to the mortgage payments. To achieve this, you need to find an additional £128/month. Where is this going to come from? Well, you're going to charge your partner interest on the money he's borrowed! If he repays £25k over 25 years (the lifetime of the mortgage) at £128/month, it amounts to an interest rate of around 3.7%.

Suppose the relationship ended after 10 years, and you wanted to go your separate ways. Let's assume the house has increased in value and sells for £400,000. The outstanding mortgage at this point is £142,720, leaving you with £257,280. Since you each own equal shares in the house, you each get £128,640. But wait! He hasn't fully paid off that loan - he still owes you £17,641. Once that's taken into account, your share is £146,281, or just shy of 57% of the total money.

Even if this isn't a scheme you actually implement, I think it is a useful way of thinking about the issue and determining what seems fair to both of you. Ultimately, 'fair' probably doesn't have a universal answer; it's a question of finding something that you're both happy with. And once you've worked that out, you can talk to a solicitor to make it happen.

Edited in the light of comments and criticisms to add: Note that this scheme does not change the amounts each person contributes. The deposit is still made up of £100,000 that started out in your bank account and £50,000 that came from your partner's, and the monthly payments still result in your account balance dropping by £400, and his by £656. Thus the overall affordability of the house remains unchanged.

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    This is a great idea! Lending your partner half of the down-payment means the extra amount they'll pay on the mortgage is easily accounted for. Personally, I'd want to add a clause that the interest is waived as long as the two are living together on good terms, because that's exactly how long the loan benefits both of them. – jpaugh Feb 19 at 23:24
  • BTW, I think your "Let's make it happen" paragraph should come first in your answer, so people can see you're up to something clever right away. You could paraphrase the question in your conclusion, rather than in the introduction. – jpaugh Feb 19 at 23:27
  • This is a smart way to get rid of some of the risk at the beginning. It is a good answer but doesn't get into the issues with a tenants in common contract... – blankip Feb 20 at 1:23
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    Does the tax man get part of that 128/month? I'm not sure how taxes work in the UK and what's deductible, but schemes such as this may not be tax-efficient. – d3jones Feb 20 at 14:45
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    @jpaugh If interest was waived, where's the £128/month to make the monthly payments even come from? For practical purposes, the money can go straight into a shared account for paying the mortgage instead of to the OP who then puts it there, but it still nominally needs to be an interest payment – Bobson Feb 21 at 0:27
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Hire a lawyer to write a contract describing who will pay what, and the amount of equity you will both have over time. Be sure there is a buy-out clause both of you agree to.

The biggest problem is actually what happens if one of you decides to move out. It's not something you're thinking about as you're excited about buying a house together. One partner moving out is usually what makes co-buying a house go sour.

If you hire a decent real estate lawyer, they'll have experience with co-buyers. Let the lawyer suggest how to split payments and down-payment equitably.

How to split payments and ownership

This is very simple. You're bringing all of the down-payment, but your partner will contribute more to the mortgage each month.

On day 0, you own 100% of any equity because you're the only person who paid in. Each monthly payment transfers some percentage of equity to your partner, until finally on payoff day you both have 50% ownership.

Most of the cost of the mortgage is interest, not principle. You'll also always need to think in terms of equity transfer as the amortization schedule means you'll be paying much more interest than principle at the beginning.

You'll need a contract + will. If one of you moves out, or you sell the house and move elsewhere how is the money divided? If one of you dies before the other, be sure ownership falls to your "co-tenant".

All this to say (again), get a lawyer. This is a big investment, you need to be sure you've got contingency plans in place.

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    Most of the time buyout clauses on investment property is unenforceable. But the crux of your answer doesn't understand that a lawyer can't help with disputes, a lawyer can't make someone pay, and a lawyer can't make them sell at a certain price... so a lawyer can help with maybe 2 out of 20 of the possible issues. – blankip Feb 20 at 1:22
  • Why would you hire a lawyer for that? – user1271772 Feb 24 at 4:57
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The starting point for assessing "fairness" is that the two of you are going to have equal use and benefit of the house while you both live there. If you do not own the house equally, then to be fair, one of you would need to pay rent to the other. To avoid having to set a rental rate, owning the house 50-50 is a simple solution.

Does each of you have enough savings and income to pay half of the down payment and half of the mortgage? If not, since you have more savings and he has more income, you can lend him money for his share of the down payment, and he can pay you back by covering some of your share of the mortgage. The natural interest rate to use for this loan is that of the mortgage itself.

He will have a balance owed to you that decreases over time until your loan to him is paid off. You can track this balance every month by adding interest and subtracting payments. You would presumably agree that if the house is sold, he would immediately pay off any balance owed to you out of his 50% share of the proceeds.

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How do we work out what is fair for us both?

You each offer various possibilities and fine tune one until you both agree that the terms are fair. Work out all details of property ownership, the sharing of ownership expenses, and equally important, a buy-out clause (or the ability to sell the property) should one party become delinquent and the other wants out. Do all of this before consulting a lawyer to draw up a contract.

A long time ago, I bought a home with a significant other. Though her income was sufficient, her credit card issues were an impediment to getting a mortgage. In the end, we bought the house but I provided her with a mortgage for half the purchase price with the rate being the current money market rate which was several percent less than a bank mortgage. We then shared all common living expenses equally (food, utilities, taxes, insurance, etc.).

In your case, it's a bit more complicated because there's a disparity in assets and income. If you could afford half the living expenses then my first suggestion would be that if you put down a larger down payment then you would own a larger percent of the home and you'd pay down the mortgage at that rate. This could get messy because your partner might want you to pay a larger percent of home related expenses and repairs.

IMO, a better choice might be for you to loan your partner some money, enabling both of you to make an equal down payment and you'd each own 50% of the home. His monthly mortgage payment to you would then enable you to share all living related expenses fifty-fifty.

And to repeat, make sure to obtain a mutually acceptable legal contract that protects both of you.

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  • Say Bob. Don't you think it would really be better to just go for straight-up perfectly equal? Take the lesser of the two capital amounts and the lesser of the two income amounts. Absolutely no tension then, no matter what, ever. (And, in each case the excess can be very nicely invested.) {Hell, each party could try option trading with the leftover capital/income respectively :O } – Fattie Feb 19 at 21:06
  • @Fattie - That's another sensible possibility, assuming that the lower amount is sufficient to make the down payment. Probably even the least complicated solution. That would leave the OP with the resources to meet living expenses (her excess assets). – Bob Baerker Feb 19 at 22:14
  • This appears to be the same concept as avid's answer. – TTT Feb 19 at 22:29
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No matter how you cut it, the guy who earns more than you and presumably will be making most/all of the mortgage payments is paying more than you over the life of the loan so the only "fair" deal would be for him to get a proportional percentage of ownership BUT I bet you don't think that would be "fair". It might only amount to you owning a broom closet, right?

Your best bet is to just ask the guy what HE thinks is fair and he may say, 50/50 because he's generous. Don't try to impose/set the deal because later on he could change his mind and have ill feelings.

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Regarding literally a suggestion for your situation:

  1. A has more capital
  2. B has more income

I truly recommend the following:

  • Simply go exactly half-each on capital, and half-each on payments.

That's the end of it.

It means you will have slightly less capital, and slightly less payment - but it's the only way forward. My guess is that anything less would result in endless bad feelings one way or another.

There is no way to equalize 1 and 2. Simply go exactly half-each on capital, and half-each on payments.


Regarding some of the other mentioned suggestions:

Before you buy the house, lend your partner £25,000. Now you each have £75,000 and can pay an equal share of the deposit.

If you think about it, unfortunately this is like saying:

A great plan in life is. Grab a credit card, and get a £15,000 cash advance. You now have £15,000 !!!!

  • Let's say me and Steve are starting a business

  • I have plenty of assets and Steve has none

  • The first thing I do is ...... lend Steve £25,000

This is an unspeakable nightmare. Steve is a slave. He has a note, to me, over his head. I'm constantly earning interest from Steve. As well as trying to work equitably on the project. If the business totally fails, for the rest of time (well, 20 years or so), Steve is enslaved to me.

So that's "pretty bonkers". Here's another idea for me and Steve!

  • Let's say me and Steve are starting a business

  • I have plenty of assets and Steve has none

  • The first thing Steve does is ...... borrow £25,000 in some unsecured fashion from somewhere (I don't know where that would be - but just say a bank)

Again - an unspeakable nightmare. Steve is a slave to the bank, he can't possibly string up any more equity if business needs arise since he's right on the line, and we are in hugely unequal positions.

This is just why two people with drastically different asset levels, don't start asset-intensive business together.

Let us set aside the "business" example, and return to a romantic relationship - !

  • Me and X are in a romantic relationship

Before you buy the house, lend your partner £25,000.

  • I lend X £25,000

X is now my slave. No matter what happens she owes me a few thousand in interest every year. What about £10 a day - X can pay me each morning when we wake up. When we split up, there it is. All our children from different parties are now intensely interested in the fact that for some reason X owes me £25,000. One of us dies - it's a seething horror to the heirs on both sides.

Just to repeat, the serious mistake here:

Before you buy the house, lend your partner £25,000. Now you each have £75,000 and can pay an equal share of the deposit.

.. unfortunately that is like saying:

Grab a credit card, and get a £15,000 cash advance. You now have £15,000!!!!

I try to make the point above that as much as you would never start a business project in such a way, how much worse a personal relationship. Unfortunately.

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    Say one has 50% to put down, and the other can qualify for a mortgage on the other 50%. Wouldn’t that be a viable option for my hypothetical couple? Why should any other split be impossible to creat a fair deal? – JTP - Apologise to Monica Feb 20 at 17:24
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    @Fattie - keep an open mind. Say there were a duplex. Identical units sold as one building. 'A' has the money to buy her half in full. 'B' can easily pay the entire mortgage on her unit, but has no downpayment. Of course, there's some risk. The market drops, B loses job, etc. But from a numbers standpoint, when the house is sold, A has her money 1/2 the homes value, and B has the same, less the outstanding mortgage. It's not even that extreme here. The kids? Should mind their business. – JTP - Apologise to Monica Feb 21 at 14:29
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    -1, but this could be a reasonable answer if not for the "it's the only way forward" and "there is no way to equalize 1 and 2", both of which are false (e.g. see avid's answer - but this is just one possible way of structuring it). This answer also won't necessarily achieve a result that the parties want as they will only be able to able buy a property which is affordable for the lowest capital AND the lowest income. – JBentley Feb 21 at 15:36
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    @Fattie Not sure what your point is about the Porsche. The comparison here isn't to fantasies or pipe dreams. Imagine for example that A has £100k in capital and B has £20k in capital. At 75% LTV, they can afford a £480k property if they agree a sensible capital/income split (and yes, capital and income can be offset fairly despite your assertion that they can't). If they go with your approach, the best they can hope for is an £80k property, and that's without considering that A's income might push the affordability even lower. – JBentley Feb 21 at 17:06
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    Your edit talks about nightmares etc... but it's important to bear in mind that what you think is a nightmare is actually pretty routine in joint partnerships, both in business, and in house sharing. It's not a nightmare for everyone. That's why your blanket "this is the only way" approach is problematic. "This is just why two people with drastically different asset levels, don't start asset-intensive business together." - simply not true, happens all the time in the business world. – JBentley Feb 21 at 17:08

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