My friend and I are buying a house – but I'm paying the whole deposit

Q My friend and I are buying a house together. It’s very exciting but also very confusing to know how everything works.

We are going to have a declaration of trust drawn up which needs to take account of the fact that I am contributing the whole of the deposit of £51,000 which is 15% of the £340,000 value. We are splitting all legal fees, stamp duty, home improvements and mortgage repayments 50:50.

I want to know the best way to agree to split the property once we decide to move on. The deposit is an inheritance from my grandmother so I want to make sure it is properly protected and that I get a small return on the investment while ensuring the division is fair for my friend who will need to continue to save for a deposit on her next property. As we’re in our mid-20s and single we’re not likely to keep the property for much more than five years so are unlikely to pay off a large proportion of the mortgage. Could you advise the best approach for our situation?HG

A One way of taking account of unequal contributions is to have the deed of trust say that the property is held in equal shares subject to the first £51,000 of any sales proceeds (after redeeming the mortgage and paying other sale costs) being owed to you. This would ensure that you get your £51,000 back but it wouldn’t ensure that you get a return of the money you have invested. To make sure that the value of your deposit rises in line with any increase in the value of the property, you could have the deed of trust stipulate that before dividing the sale proceeds between you, you would get an amount equivalent to 15% of the value of the property when it is sold. The downside of this approach is that if property prices were to fall, so too would the amount of your deposit you would get back.

Another way of looking at it would be to have the deed of trust reflect your unequal shares in the property. So you would take your cash contribution plus your half of the mortgage divided by the value of the property multiplied by 100 to give your percentage share of 57.5% and your friend’s 42.5%. What you would get back in the event of a sale would be 57.5% of the value of the property less your half of the outstanding mortgage.

Whatever method you choose to use, when you get your deed of trust drawn up, you can also have it cover what will happen if either of you wants to stay in the property rather than selling and also detail the fact that you are splitting all other costs 50:50.