Calculating split equity on a mortgage?

Hey guys, hopefully someone can help as this is melting my brain! I'm looking at moving house with my girlfriend but I want to work out in advance how we would split the equity if we ever parted ways. I'll use the following basic figures...

My deposit: 100K
Her deposit: 0K
Joint mortgage: 200K (repayments split 50/50)

Now in simple terms, I have 33% equity plus 50% of the remainder, or 66% in total.

The problem is I can't figure out or find a calculation online for splitting the equity if we split up, which takes into account deposits and contributions, property rises or drops?

IS there a calculation or should I using a statement such as "66% of the equity, or £100K, whichever is higher"?

Cheers.

First 100k plus interest is yours, then 50% split minus costs on the remainder.
Then all that's left to do is fight over the contents and the cat.

But then say we pay the mortgage off (ignoring interest), I've paid £200k effectively and she's paid £100K, but the property value drops to £100k, is it fair I get 100%?

[Mr Speirs]

Ignore what I just wrote! Thought the house was worth 200k.

Once you put the 100k into the house it becomes a percentage share in the house. I don't think you will in entitled to request your 100k back should things go south.

You will be entitled to 66% of the market value of the house.

I would get this contract agreement written down preferably by your solicitor to fully protect yourself.

In reality, there’s no foolproof way of doing this as it depends on how you allocate the figures. For example, is this based simply on the contribution to the mortgage or does the calculation include the usual legal/conveyancing fees? Also, at the end you would need to decide how that equity would be realised. Its OK for one to buy the other out (if possible) - pending the bank agreeing to a new mortgage - but if selling then legal/conveyancing fees may again apply.

Therefore, if you want to achieve the most accurate calculation for your needs, you're gonna need to pay for it by seeking professional legal advice.

However, if you wish to keep things simple - lets say you only want to calculate contribution to the mortgage incl deposit) then the equity split would be the proportion put in divided by the value at purchase. So your 66% could be correct. Now here's the big question.

Will the agreement guarantee your 100k or will you treat the 100k as purely part of the 66% which means your 100k will be at risk (say in the unlikely event that you get into massive negative equity)? I should think your partner wants you to share the risk as, otherwise, any investment she makes (i.e. mortgage payments) may be meaningless in these circumstances if your 100k is guaranteed.

The last two paragraphs are assuming you are making an informal (written) agreement. Obviously if you go to a Solicitor they should ask all these questions, and more, in drawing up a formal agreement - note: an informal written agreement between you is still legally valid but both parties should discuss the terms together, sign and have it witnessed to ensure its legally binding.

Originally Posted by Mr Speirs

As far as I can tell I would say that your share would be 75% of the value of the property.

Your 100k becomes 50% of the value of the house (it does not remain 100K). On the remaining 100K you are spliting it 50/50. In total you have paid or are paying 75% of the market value of the house.
When it comes to selling it you will get a 75% share in the equity of the house.

However I think you must get this put in writing.

Thats incorrect. the mortgage is 200k plus deposit = 300k.

Originally Posted by Stenno

But then say we pay the mortgage off (ignoring interest), I've paid £200k effectively and she's paid £100K, but the property value drops to £100k, is it fair I get 100%?

That's the big question I referred to (I was writing whilst the others were answering )

Assuming it takes 25 years to pay off the mortgage...

a) Unless society has completely fragmented, inflation will ensure your house is worth>100k. It's just that 100k won't actually be worth that much by then....

b) Hopefully after 25+ years together you'll be pretty settled as a pair and the maths won't be required.

Other way to work it is:

Amount of equity owned:

You 50%
Her 0%

So in future if you had to sell. Take the sales price (less costs of sale). 50% goes straight to you. The remaining amount is split 50/50. Note that if you have the mortgage then you need to include the costs of settling the mortgage account in the cost of sale.

Hope this makes some sense - it is Monday so no guarantees

Ian

[Paul the 6th]

Originally Posted by Runako

Thats incorrect. the mortgage is 200k plus deposit = 300k.

In London: Stenno must be treating himself to a 2 bed terraced with shared W.C. amenities for that sort of wonga

could have had a really nice detached house with large gardens front & back double garage and 3-4 bedrooms for that money up our way

[Mr Speirs]

Originally Posted by LankyIanB

Amount of equity owned:

You 50%
Her 0%


Hope this makes some sense - it is Monday so no guarantees

Ian

Who owns the other 50%?