Mortgage maths

16th February, 2008

Dear Economist,
I gave my sister a 30 per cent share of my mortgage when buying a new house two years ago so she could get on the property ladder. In return, she gave me some money towards the deposit on the house – about 20 per cent of the total put down. Given my larger share of the investment and commitment, should I get a greater proportion of the equity than my 70 per cent share, if and when we sell?

Dear Ben,

It is astonishing that you have entered into this enormously valuable contract without agreeing terms, but perhaps I should not be surprised – your letter suggests that you are unable even to think clearly.

You do not “give” someone a share of a mortgage any more than you “give” them a share of your restaurant bill.

If all you mean is that you gave her 30 per cent equity in exchange for a deposit, stick to the deal.

But I think you mean that your sister paid 20 per cent of your deposit and 30 per cent of your mortgage and has received nothing in return so far. You, on the other hand, have had your living costs subsidised and your risks in the property market hedged. Thanks to a housing bubble, your joint investment has paid off and you would now like to cream off some additional upside. Had there been a slump – widely forecast when you bought the house – would you be offering to bear more than 70 per cent of the loss?

There is no well-defined outcome from your befuddled arrangement, but it would be reasonable for your sister to enjoy more of the upside.

She took on nothing but risk, while you lived on the cheap. Family values, indeed.

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