partner buying into house

[James]

Hi
Not sure if this is the right place, but can’t think of a better one.
I’m trying to get some advice on the following situation. I will seek formal legal advice but I want to know if what I’m trying to do is even possible.
My girlfriend and I are moving in together. More accurately, she’s moving in with me. I own a house, she rents. I have a mortgage on about 50% of the property so have c.50% equity.
She wants to contribute to the housing costs as she a. earns more than me and b. wants to get some equity in a property herself. I’m happy for her to earn a slice of the outstanding cost of the house, including the interest element, in return for her contributions.
But… we’re both have previous divorces between us and are realistic. Things don’t always go to plan, so we both want to protect our interests. I don’t want give her access to half of what I have if it all goes wrong in a few years, and if it does, she wants to be able to get her hands on her slice of the property. All fair enough.
We’re not married and don’t have children. If one of us chips off before the other, the survivor will have a life interest in the share they don’t own, which will then go to the predecessor’s estate.
The question is, how does on go about making an arrangement that covers this? I don’t think a private mortgage works, as I still have a mortgage on the house.
Or, should I remortgage, registering my stake in the house with the land registry, and let her gain access that way? And how does that work in the worst case separation scenario?
Ideas/options/pitfalls welcomed.

[Lootman]

That's like the situation I was in with my girlfriend (now my wife). It was many years ago and there may be other options now. But the idea was to preserve my equity at the point of her moving in, and then share expenses and price appreciation thereafter. As in your case, she earned more than me.

The advice my solicitor gave was to enter into a Deed of Trust.

Assume your property is worth 400K and the mortgage is 200K. Therefore the equity is 200K and that is all yours. The Deed of Trust says that the first 200K of any proceeds, after the mortgage and selling costs are paid, go to you. After that, the proceeds are split 50/50.

As I recall it was quite a simple document. We used a solicitor to draw it up but it looked easy enough that you could do it yourself from a blank template. That way you can own the property as tenants in common, and jointly pay the mortgage and all bills, and the result is fair.

In our case, when we married, we just tore up the Deed of Trust. Since it wasn't registered with the Land Registry, that ended the arrangement. Although you probably should register it with the Land Registry - otherwise if you died then your partner could dis-inherit your heirs by selling the property whilst "forgetting" about the Deed of Trust.

Caveat - this was a long time ago. If anything has changed or there is now a better way of doing it, I'm sure someone here will know.

[DrBunsenHoneydew]

I'd have done the same on marriage, but note that that way, you've paid for 3/4 of the house overall and she's paid only 1/4.
So that might not be considered fair if house prices rise significantly for you to receive £200k plus half the remainder.

[James]

Thanks for the input. Both make sense.
Part of the issue is that we won't be paying equal amounts into the outstanding mortgage. She'll be paying virtually all of it, in order to up her stake in the house.
I guess what we're looking for is a percentage-based system so that for every 1k she pays in, she owns x% of the house + mortgage interest. In a worst-case scenario, it would simply be a matter of valuing the house and giving her that % of the value.
So say house mortgage 200k, interest over 15 yrs 50k, total outstanding 250k. She pays 1k a month.
In 15 yrs, she'd have 180x1k=180k of = 450k [total cost of buying] = 40%. House still valued at 400k, she gets 400k*40%= 160k. [20k for 15 years rent, in effect]
If in five years we change our minds, she's paid 60k of 450k = 13%, so she gets 53.3k.
Any decrease/increase in value of property would then be shared equally on an equity basis..
So, am I missing anything here, and is this something that can be arranged under a Deed of Trust? Or any other way?

[quelquod]

I suspect though that thinking as long-term as 15 years or near it is a bit of a diversion as a split then would take account of lots else.

[shadowside]

Isnt the situation that you currently own 50%. She is taking a mortgage on the other 50%. If you come to sell you will have equity of 50% of the sale price and she will have 50% less the outstanding mortgage. Should be fairly simple to set this down in a legal document.

This asumes she pays 100% of mortgage which may be the simplest solution.

[melonfool]

It can be arranged by a deed of trust - and it should be registered at the land registry. Note it is not valid after marriage as property owned within a marriage is a marital asset (though in a short marriage with no children a judge might take it into account on divorce).

The thing you would need to do would be to remortgage as the mortgage co will not allow her to have any charge over the house while they provide the mortgage. So you would probably need a joint mortgage and to own jointly as tenants in common in the specific proportions.

I can't quite get my head around how she pays the mortgage and thus her share increases. The way we did it was that I paid for my half of the house in cash from my previous property (new house to both of us but I don't think that matters), he paid what he had in cash and then we took a joint mortgage on the 'rest' (c23%). Our deed then made it clear that he paid the mortgage and agreed that I was not liable for the mortgage and was protected from payment. Plus if we split (as we have in fact) he had to pay me my paid-for half first, *then* pay the outstanding mortgage himself.

Obviously as it was a joint mortgage this did not absolve me from my responsibility to pay the mortgage if he didn't as that is a joint and several liability which cannot be overridden - except it did mean I could pursue him for the money if that happened. I wasn't worried about that aspect to be honest.

With regard to 'register it or if you die they cans ell the house and disinherit your estate' - no they can't. To sell a property you have to show title and if the title is held as TIC you cannot show you hold the title, so irrespective of the deed of trust you cannot sell the other person's share.

You would be advised to make a will though.

Though, really, in your case, I would suggest she invests her money elsewhere and you own your house. Could she buy a rental property or something instead?

Mel

[Lootman]

With regard to 'register it or if you die they cans ell the house and disinherit your estate' - no they can't. To sell a property you have to show title and if the title is held as TIC you cannot show you hold the title, so irrespective of the deed of trust you cannot sell the other person's share.

But there can still be a problem if you do not file the Deed of Trust with the Land Registry, as follows:

Suppose A and B own a property as TIC. The property is worth 600K and assume no mortgage for the sake of simplicity. Assume further that there is a Deed of Trust that prescribes that A will get the first 200K and the rest is split 50/50.

Under normal circumstance, if A and B decide to sell, then A will get 400K and B will get 200K. So far so good.

But if A dies and the Deed of Trust isn't filed at the Land Registry, then B could destroy the Deed. The sale would then attribute 300K to A's estate and 300K to B. This would be particularly serious if A's heirs were not aware that the Deed exists. B might be the only person alive who knows of the Deed.

Now, A might have informed his heirs of the Deed, or maybe even given them a copy of it. But he also might not have done. That is where filing the Deed at the Land Registry is important - it makes it impossible for B to get away with destroying the Deed and keeping quiet about its existence and applicability.

[James]

Isnt the situation that you currently own 50%. She is taking a mortgage on the other 50%. If you come to sell you will have equity of 50% of the sale price and she will have 50% less the outstanding mortgage. Should be fairly simple to set this down in a legal document.

This assumes she pays 100% of mortgage which may be the simplest solution.

Trouble with this model is that she'd be paying all the interest on 'her' mortgage. This may be fair - I paid the interest on the mortgage that allowed me to get my stake in the house - need to think on that one.

But if A dies and the Deed of Trust isn't filed at the Land Registry, then B could destroy the Deed. The sale would then attribute 300K to A's estate and 300K to B. This would be particularly serious if A's heirs were not aware that the Deed exists. B might be the only person alive who knows of the Deed.

Now, A might have informed his heirs of the Deed, or maybe even given them a copy of it. But he also might not have done. That is where filing the Deed at the Land Registry is important - it makes it impossible for B to get away with destroying the Deed and keeping quiet about its existence and applicability.

A will have definitely informed his heirs and there will be wills drawn up giving a life interest to each other's portion.

[Lootman]

But if A dies and the Deed of Trust isn't filed at the Land Registry, then B could destroy the Deed. The sale would then attribute 300K to A's estate and 300K to B. This would be particularly serious if A's heirs were not aware that the Deed exists. B might be the only person alive who knows of the Deed.

Now, A might have informed his heirs of the Deed, or maybe even given them a copy of it. But he also might not have done. That is where filing the Deed at the Land Registry is important - it makes it impossible for B to get away with destroying the Deed and keeping quiet about its existence and applicability.

A will have definitely informed his heirs and there will be wills drawn up giving a life interest to each other's portion.

That makes sense but, even so, there is the potential for an expensive legal fight here, as follows:

A's heirs claim that a Deed of Trust existed that gives them the first 200K. But B denies that claiming that, by mutual consent, A and B destroyed the document and repudiated its prescriptions.

Will A's heirs win in court? Maybe. Maybe not. But meanwhile probate has been delayed, the executor has been messed about with and lied to, and all of the parties involved now hate each other. Filing the Deed of Trust with the Land Registry kills that at a stroke, because the executor will have access to that document as will any solicitor attempting a conveyance.

I know I said that I didn't file our Deed with the Land Registry, but it's not an option I recommend.

[Clitheroekid]

Filing the Deed of Trust with the Land Registry kills that at a stroke, because the executor will have access to that document as will any solicitor attempting a conveyance.

I know I said that I didn't file our Deed with the Land Registry, but it's not an option I recommend.

Whether you would recommend it or not is unfortunately irrelevant. There is no means of filing a Deed of Trust at the Land Registry, and this is because the LR are only interested in the legal ownership. They are not interested in the beneficial ownership.

There are basically two choices. Either leave the property in your sole name and enter into a Declaration of Trust or transfer the property into joint names as tenants in common.

If you do the former, although you can't register the DoT at LR you can still enter a `restriction' against the title. This would effectively serve as notice to a prospective buyer / lender that a third party had an interest in the property, but it wouldn't give any details of the DoT.

If you transfer the property into joint names then you could, in theory, set out the whole DoT in the transfer deed. This would be a back door way of registering the DoT in that it would be incorporated into the transfer deed, and that's a document that would be retained by LR following registration.

The downside is that the DoT would then be a public document, available to anyone who wanted to have a look at it. Most people would not want their private financial arrangements available for public inspection.

The more conventional way would be for the transfer deed to say that the property was held as tenants in common on the trusts set out in a deed dated the x day of x 2017. This would therefore disclose the existence of the DoT but not its contents.

Either way, this isn't something to be tinkered around with using downloaded documents off the internet. You and your partner need proper one to one legal advice and the documents should be drafted by a solicitor.

[melonfool]

With regard to 'register it or if you die they cans ell the house and disinherit your estate' - no they can't. To sell a property you have to show title and if the title is held as TIC you cannot show you hold the title, so irrespective of the deed of trust you cannot sell the other person's share.

But there can still be a problem if you do not file the Deed of Trust with the Land Registry, as follows:

Suppose A and B own a property as TIC. The property is worth 600K and assume no mortgage for the sake of simplicity. Assume further that there is a Deed of Trust that prescribes that A will get the first 200K and the rest is split 50/50.

Under normal circumstance, if A and B decide to sell, then A will get 400K and B will get 200K. So far so good.

But if A dies and the Deed of Trust isn't filed at the Land Registry, then B could destroy the Deed. The sale would then attribute 300K to A's estate and 300K to B. This would be particularly serious if A's heirs were not aware that the Deed exists. B might be the only person alive who knows of the Deed.

Now, A might have informed his heirs of the Deed, or maybe even given them a copy of it. But he also might not have done. That is where filing the Deed at the Land Registry is important - it makes it impossible for B to get away with destroying the Deed and keeping quiet about its existence and applicability.

Sorry, you've just made all that up.

Mel

[melonfool]

Isnt the situation that you currently own 50%. She is taking a mortgage on the other 50%. If you come to sell you will have equity of 50% of the sale price and she will have 50% less the outstanding mortgage. Should be fairly simple to set this down in a legal document.

This assumes she pays 100% of mortgage which may be the simplest solution.

Trouble with this model is that she'd be paying all the interest on 'her' mortgage. This may be fair - I paid the interest on the mortgage that allowed me to get my stake in the house - need to think on that one.

Of course it is entirely reasonable that she pays interest on money she borrows to buy half a house Money doesn't grow on trees. You can console yourself that if you do it soon you'd be able to get a rate below 2% I expect (my new mortgage is 2.1%, but it's a v small mortgage and no arrangement fee)

I never gave a second thought to the interest OH was paying (well, I did and I made sure he/we got the best deal possible at the time as he had no interest in these matters, but it never occurred to me to wonder if it was fair that he had to pay it.)

Mel

[Lootman]

Sorry, you've just made all that up.

It was a hypothetical example and so, yes, I made it up. That is what the word "hypothetical" means. But my suggestion to avoid such clear and evident risks was exactly what my solicitor recommended and what ClitheroeKid also suggested earlier, when he said:

"The more conventional way would be for the transfer deed to say that the property was held as tenants in common on the trusts set out in a deed dated the x day of x 2017. This would therefore disclose the existence of the DoT but not its contents."

To fail to ensure that the Land Registry has knowledge of the Deed necessarily involves the risk that a future conveyance may disregard the intentions and agreements of that Deed. Why would you take that risk?

[James]

Thanks all.
From what I've learned here, the best route seems to be for her to get a mortgage for x% of the house (roughly 50%).
We'll ensure there's a deed of trust explaining that we have different percentages and that she is responsible for paying her mortgage. I can live with the risk of her not paying it. That deed can cover any other details re: separation/death. Worst scenario I can imagine is a forced sale with proceeds distributed along the lines described in the deed.
Seems no reason not to register it with the Land Registry. Presumably this is a requirement of a mortgage, anyway.
We'll also have wills giving life interests in each other's stakes, so an unexpected catastrophe doesn't also mean a forced house move.
Naturally, I hope it will never come to separation or death before our times, but I know people who have lost inheritances when an partner has remarried and part of the reason she is in the equity-less state she is in is because of the way her previous marriage failed so we both want to secure against as many vicissitudes as we can.

[Clitheroekid]

Thanks all.
From what I've learned here, the best route seems to be for her to get a mortgage for x% of the house (roughly 50%).
We'll ensure there's a deed of trust explaining that we have different percentages and that she is responsible for paying her mortgage.

Maybe I've misunderstood you but it's impossible for her to get a separate mortgage in respect of "her share" of the house.

The only way for anything like that to happen would be for the house to be transferred into your joint names. Because it's subject to a mortgage you would need the lender's consent to the transfer. This would only be granted if your partner became a joint borrower with you, so that if the mortgage fell into arrears the lender could sue her as well as you.

Alternatively, you could remortgage the house with a new lender at the same time as making the transfer. Again, the new mortgage would have to be in your joint names.

Seems no reason not to register it with the Land Registry. Presumably this is a requirement of a mortgage, anyway.

Yes, it is. If the house is transferred into joint names the transfer will need to be registered at the Land Registry and the new joint mortgage would also be registered at the same time.

[James]

Thanks all.
From what I've learned here, the best route seems to be for her to get a mortgage for x% of the house (roughly 50%).
We'll ensure there's a deed of trust explaining that we have different percentages and that she is responsible for paying her mortgage.

Maybe I've misunderstood you but it's impossible for her to get a separate mortgage in respect of "her share" of the house.

The only way for anything like that to happen would be for the house to be transferred into your joint names. Because it's subject to a mortgage you would need the lender's consent to the transfer. This would only be granted if your partner became a joint borrower with you, so that if the mortgage fell into arrears the lender could sue her as well as you.

Alternatively, you could remortgage the house with a new lender at the same time as making the transfer. Again, the new mortgage would have to be in your joint names.

Seems no reason not to register it with the Land Registry. Presumably this is a requirement of a mortgage, anyway.

Yes, it is. If the house is transferred into joint names the transfer will need to be registered at the Land Registry and the new joint mortgage would also be registered at the same time.

Sorry, I probably wasn't clear. The idea would be to get a new mortgage/ownership in joint names, with the deed of trust/LR entry establishing the ownership stakes. She would then pay that mortgage. Yes, the mortgage co could come after me if there were arrears, but I see this as unlikely as I don't want to lose my house, and that would lead to a separation, at which point the pre-arranged division of assets would come into play. I think. In that case, I just get a mortgage on my own again for the outstanding amount.

[Clitheroekid]

Sorry, I probably wasn't clear. The idea would be to get a new mortgage/ownership in joint names, with the deed of trust/LR entry establishing the ownership stakes. She would then pay that mortgage. Yes, the mortgage co could come after me if there were arrears, but I see this as unlikely as I don't want to lose my house, and that would lead to a separation, at which point the pre-arranged division of assets would come into play. I think. In that case, I just get a mortgage on my own again for the outstanding amount.

OK, that seems fine to me. Good luck with it.