Q My son wishes to buy a flat with his girlfriend. He has approximately £280,000 in cash to put down as a deposit and she has £20,000. I have also said that I am willing to give my son a loan of £70,000 to be paid back without interest over the next 10 years. They will also need a mortgage of about £90,000.
Because of the difference in outlay they wish to set up some kind of arrangement via a deed of trust to specify what would happen if they should decide to split up.
I am trying to work out the simplest way of doing this. I think it would be simplest if they split all bills, mortgage and my loan repayments as 50/50. But I am wondering how this pans out. Would his girlfriend’s percentage increase over time?
In the scenario that they would not want to sell the flat but my son would buy her part, and continue paying the mortgage and my loan, how would this work? Can you advise? Or is there a simpler way of doing it?
GN
A Deciding how the mortgage and other bills will be split is only one element of a deed of trust, usually drawn up between joint owners of a property. It typically also includes details of how much each party will put into the purchase and how much they will be repaid if the property is sold or one person buys out the other. A deed of trust also usually states what percentage of the property each joint owner owns – which is particularly important where unequal contributions are made towards the purchase – and how money will be divided when the property is sold.
In the case of your son and his girlfriend, you are right in thinking that splitting the mortgage and other bills (including paying for property improvements but not your son’s loan repayments, of which more later) 50/50 makes things simpler.
Assuming they do split post-purchase expenditure down the middle, it is relatively straightforward to work out their percentage shares in the property. To do this, your son and his girlfriend should each add their cash deposit to half the initial mortgage loan, divide by the purchase price and multiply by 100.
So assuming the flat costs £460,000 and they get a mortgage of £90,000 (£45,000 each), and that your son puts in £350,000 in cash (his £280,000 plus your loan of £70,000) and his girlfriend contributes £20,000, he would own 86% of the flat and his girlfriend 14%. Because your loan increases your son’s share in the property rather than being of benefit to both him and his girlfriend, he alone should be responsible for repaying it.
And apologies if this sounds rude but rather than dwelling on the contents of their deed of trust, which really isn’t your business, you should concentrate on getting a formal agreement drawn up between you and your son on the terms of your loan to him as this is a completely separate transaction from the purchase of their flat.
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