I’m buying a home with my partner but we have unequal deposits – what should I do?
A question we get asked a lot is “How can we buy a property together but protect our individual finances?”
If you’re thinking of getting on the property ladder with your partner, chances are one of you earns more than the other and one of you has more deposit than the other. Whilst you’re no doubt excited at the prospect of owning a home together, it’s only prudent to consider what might happen in the future if things don’t work out.
If you’re each contributing a different amount towards the purchase, a simple way to protect your share is a Declaration of Trust (or Deed of Trust), which your solicitor can draw up for you. A Declaration of Trust is a legally binding document made at the time of buying a property. It records the financial arrangements of everyone who has an interest in the property, detailing what share of the property they own and what should happen in various eventualities, such as if all owners agree to sell the property or if one owner wishes to buy out another.
For example, if you’re:
- Buying a property for £500k
- Taking a mortgage of £425k
- One of you (person A) has £50k (10%) to put down
- The other (person B) £25k (5%)…
…then your Declaration of Trust could say in the event of selling, person A gets 10% of the sale price, person B gets 5% of the sale price, and the rest is shared equally.
In this scenario if you sold for £600k in a few years’ time, let’s say the mortgage was down to £400k so there was now £200k equity. Person A would get £60k (10% of the sale price) and person B would get £30k (5% of the sale price) and the remaining £110k would be split 50/50, so in total person A gets £115k and person B gets £85k – they’ve both made £60k profit and person A still gets more than person B to reflect what they put in.
This is just one example – there are unlimited ways that joint owners can protect their interests, so it’s important to take proper legal advice. The most important thing is to talk about it – don’t put it off for fear of sounding mean – you’ll both feel much happier if you know you have something official in place.
We’re not legal advisers at Mortgage Medics but we have years of experience helping first time buyers get on the property ladder so we’ll be happy to help you understand your options in more detail. We can also put you in touch with a trusted legal professional for all the technical stuff. Just get in touch and we’ll get the ball rolling.
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Sam Murphy – 7th January 2022