I'm buying a home for me and my girlfriend – what happens if we split up?

Q I am buying a house for me and my girlfriend to live in at a cost of £450,000. The mortgage will be solely in my name and I alone will be named on the Land Registry as she already owns another property. But we will act like we own it together as we want both to feel at home there.

We have a 20% deposit: I have £72,000 and my girlfriend has £18,000. I plan to take out a repayment mortgage for the remaining £360,000. I will pay 80% of the monthly mortgage cost and she will give me 20% of the repayments. After the first two years the repayments will go up in amount, but we plan to keep the same 80/20 split.

While I don’t want to be insensitive or come across as selfish, I feel it’s important to make sure everything is clear just in case we went our separate ways in five or 10 years’ time. But I can’t figure out what would be a fair split.

If the house appreciates in price and is worth, say, £500,000 in five years’ time, do I simply give her £100,000 as that’s 20% of the value? But then what about the fact that I still have to pay back the full mortgage? Or do I give her back her £18,000 plus 20% of the gain from any appreciation? But does this then fairly reflect that her equity stake has increased from making some capital repayments?

What would be a fair way of agreeing any lump sum payment I should make to her in the future if we ever split up? JM

A It is sensible of you to make sure that there is an agreement in place about how much you girlfriend should get back should you split in the future.

If your girlfriend is contributing £18,000 to the cost of the property, her stake in it will initially be just 4%, not 20%. Even if you pay off the mortgage each month through an 80/20 split, if and when you do eventually sell, she will still not have a 20% stake. As you are aware, you’ll need to take into account how much of the mortgage her 20% contribution has paid off over the years. As you are getting a repayment mortgage, this will not simply be a case of adding up her total contributions. You would need to get detailed statements from your mortgage lender showing how much of each payment was interest and how much went towards paying off the amount you borrowed.

To start with, the amount paid off will be a lot less than the interest paid but as the years go by, the amount paid off each month increases. By the end of the first year of a £360,000 25-year repayment mortgage charging 4% interest, the 12 monthly mortgage payments would have been made up of a total of just under £14,255 in interest and £8,560 of capital repayment. But by the end of year five, the interest bill would have gone down to £12,760 and the amount of capital repaid over that year would have increased to £10,040. This reflects the fact that the outstanding mortgage would have gone down to £313,575.

Assuming that your girlfriend did pay 20% of the mortgage payments over five years, her 20% share of the £46,425 capital repayment would be £9,285, which represents an extra 2% share on top of her original 4% in the property if you use the original purchase price, or 1.85% if you use a value of £500,000.

To keep things simple and fair, I would suggest that your girlfriend doesn’t contribute anything to the mortgage so that if you split, you only have to work out what to pay her by taking 4% of the house’s value at the time.

It would be even simpler not to take her £18,000 as a deposit at all and more in your girlfriend’s interest, since without being named on the mortgage or at the Land Registry, she’s reliant on your goodwill to get her money back. Perhaps just splitting the other bills between you will make you both feel at home, although jointly buying furniture and appliances isn’t advisable as it can make things messy if a split happens.