Help with a calculation.

[greenjersey]

Hi, I need the help of a mathematician with a calculation that I am struggling with. My daughter is selling her home to purchase another. She owns it as tenant in common with her partner. Because she contributed the deposit she owns 55%, he owns 45%, this is recognised in a Deed of Trust. They are selling for £215,000 and the new home is costing £275,000 and my daughter is contributing a further £40,000 in cash. What percentage share of the new home would she own? Sorry for the rambling question and thanks in advice for any help.

[maths]

If she is entitled to 55% of £215,000 that is £118,250.

If she contributes this amount plus £40,000 she is contributing £158,250 to the new purchase.

Given new cost of £275,000 then she will own [£158,250/£275,000] ie 57.55%.

[greenjersey]

Thanks maths,i had considered the same calculation but what I have difficulty with is that a contribution of £40,000 ie 14.54% of the purchase price of £275,000 only adds 2.55% to my daughter's share. Can that be right?

[pqtaxation]

... what I have difficulty with is that a contribution of £40,000 ... only adds 2.55% to my daughter's share. Can that be right?

Yes it's right, suggest look at it in following way

Currently, £215,000 = 118,250
Prospectively 275,000 *55% = 151,250
Investment needed to maintain 55% share = 33,000
Amount to be invested 40,000
Additional Investment 7,000
Additional ownership 7/275 *100% = 2.55%

[greenjersey]

Thanks pqtaxation, I have no doubt you and maths are right and I am just being thick. i think it could help me to get my head round this if the position could be explained if my daughter didn't make a further contribution ie they just took out a bigger mortgage. Would the percentage shares remain the same at 55% to 45%?
Once again thanks.

[maths]

This posting may be clearer and more “life-like”.

When you say daughter owns 55% and partner owns 45% this means that she has equity in the property of 55% and his equity is 45%.

If a mortgage is involved they each are responsible for repaying 50% each (not 55% and 45%) as mortgages are effectively joint borrowings.

Assume house bought for £155,000 and now is to be sold for £215,000.

Assume the £155,000 was funded by £55,000 mortgage and the other £100,000 was funded by daughter £55,000 and him £45,000 (hence why she has equity 55% and him 45%).

House now sold for £215,000. Mortgage is repaid (let’s assume £55,000 still outstanding) leaving £160,000 equity. She gets 55% ie £88,000 and him £72,000.

New house costs £275,000.

She puts in [£88,000 + £40,000] ie £128,000 and he puts in £72,000 ie her equity is now 64% and his is 36%.

Shortfall [£275,000 - £200,000] = £75,000 which is raised by mortgage.

So by each of them putting all the monies from the sale of the first house into the second house (with her putting in an extra £40,0000) means her equity % has gone up from 55% to 64%.

The reason for the difference between this and my posting above is that this posting takes into account any mortgage.