Really need some impartial advice on money row with sister!

[Cornberry]

I am in desperate need of an impartial opinion on a sensitive issue.

My parents gave my sister and I a substantial deposit to buy a flat a few years ago. Since that time I have lived in the flat and my sister has lived elsewhere in rented accommodation and now she lives abroad - she had the option to live in the flat too but chose not to. In that time I have taken care of the flat and obviously I (and later on my husband) have paid all the bills and the mortgage etc. We agreed at the outset that my sister and I should split the proceeds 50-50 when it came time to sell.

Now that is time to sell and looking at the figures I realise that our mortgage has come down £30,000 which obviously I have paid since I have been living here. And when we split the money left over after repaying it my sister will get half which seems fair enough because that is what we agreed. However I realise that to bring down our mortgage by £30,000 I have paid in over 50,000 because of the interest. So now it occurs to me that if we split everything 50-50 my sister will get back 15 K, which is half of the money repaid on the mortgage but I will also get in 15 K having paid in 50. This strikes me as unfair. She hasn’t paid anything at all into the flat, which was the agreement and that’s fine, but it seems to me that she should receive a proportion of the increase in value on the property but I am unsure why after I have paid over 50 K into the mortgage to bring it down 30k that she should get 15,000 of it having paid nothing and I should get in 15,000 of it having paid in 50,000. Does that make sense?

Interestingly, my parents do not agree. One of them thinks my sister should get half as agreed and the other one thinks that the point about the interest is a relevant one. I would dearly like to have some opinions from people who are unbiased because I honestly don’t think it’s possible for any of us to be completely impartial on this. I suggested to my sister that she should indeed receive her half of the increase in value but not the repayments, bearing in mind she has never put a cent, and if we split it with her we will she will get more out of the money we paid in than we will.

One issue seems to be one of “changing the goalposts” and my sister has accused me of going back on our agreement to get more money. But the problem is that I was very clueless going into this and I am certain that we had known the considerations at the outset we would have made a different agreement.

Am I being unreasonable?

You have a joint mortgage with your sister which you have been paying in lieu of rent. The interest is really a red herring. That’s how mortgages work.

What you owe her is 50% of the market rate for your property for all the time you have occupied it.

What she owes you is 50% of the mortgage costs, including overpayment. (This for ease of calculation, although overpaying puts you in CF territory, because clearly you intended this for your personal benefit, not yours and hers jointly.)

She does not owe you anything else, eg maintenance and “improvements”. In a shared ownership scheme these costs are all borne by the occupant/owner.

There’s an interesting thread on here where the OP installed a bathroom and other significant improvements to a rental property. She was astonished by the negative reaction from posters, many of whom were landlords. Like you, she had lost sight of the fact that she didn’t own the property. Your sister might feel the same about some of the changes you have made to the property she jointly owns.

Do the calculations set out above and then split 50/50.

What she owes you

*cut and paste fail - “What she owes you”

50% of the market rate rent*

Could you remortgage and buy your sister out? Then the flat would be yours completely.

You were living there without paying her rent on her half of the flat. Your contribution was to pay the mortgage which is paying to house yourself, like she was by paying rent. You were paying for the use of the house which if you think about it still largely belonged to the mortgage company.

A deal is a deal. You have had the benefit of living in the property while your sister paid rent and had no rental income on her share of the property.

Can you take the overpayments on the mortgage back out and then split from there? You were foolish to make those on a property you don’t own 100%. Other than that I think you need to split 50/50 with your sister.

What do you think you will do then OP?

(In team 50/50 btw)

OP you're double counting the money you've paid. Either you see yourself as an investor or the tenant, you can't count yourself as both....why?
Well if you had a private tenant in there, and they decide to leave, the tenant has no right to your share of the house as it was a business transactions. A tenant can't say because I've rented your house and you gave the rent I paid to the bank to pay your mortgage you should give me your share of the house.

Sorry I'm really trying to explain this in layman's term as I'm seeing how your brain is calculating what you're owed.

The easiest split for me would be to split everything 50/50 as agreed but calculate how much you over paid. Your sister should pay you back half of the amount you over paid. I think the overpayment is what's causing the issue. If you didn't overpay everything should be 50/50 without a quibble

@Notagainagainagain Luckily, the OP doesn't really get to decide, does she. Think this thread was more for validation...

The agreement was made in the beginning, so OP either has to go with it, or push this new agenda  and escalate it to the point of seeking legal advice (fwiw, I'm with everyone else who's said she wouldn't have a leg to stand on).

I don't blame your sister for being irked. If she'd known the agreement would be challenged at the final hour, she'd have probably chosen to utilise her asset properly over the years; live there and pay into the mortgage/pushed to rent it out entirely/charged you rent on her half.

You can't go back now and change the deal so that it benefits you more 

You have a joint mortgage with your sister which you have been paying in lieu of rent. The interest is really a red herring. That’s how mortgages work

Indeed. I'm confused about the way that you consider your mortgage: if it's a standard residential owner-occupied mortgage it's usually interest + capital repayments. Everyone incurs interest on a loan. To try to argue that the interest paid is "extra" is ridiculous.

The OP needs to see that as one thing, and the amount of the mortgage she paid st against the market rent the flat would have realised.

The division of the mortgage into capital and interest, and the refusal to see that both elements are relevant, adds to my sense that the OP is being wilfully stupid/ignorant/naïve.

Here's the OP again on the original agreement. Notice the confusion & contradiction. I feel sorry for the sister, having to put up with this. Note the She hasn’t paid anything at all into the flat, which was the agreement

She hasn’t paid anything at all into the flat, which was the agreement and that’s fine, but it seems to me that she should receive a proportion of the increase in value on the property but I am unsure why after I have paid over 50 K into the mortgage to bring it down 30k that she should get 15,000 of it having paid nothing and I should get in 15,000 of it having paid in 50,000.

OP simple answer: Because the mortgage you paid was the equivalent of the market rent your sister would have received if you had not lived there.

You yourself say that the mortgage was a little below the market rent; if I were you, I'd shut up - on that admission, your sister could claim a higher proportion of the split ...

I think it's interesting that the "impartial view" you seek is uninfluenced by any moral assessment of tours or your sister's character & behaviour. You somehow seem to want money to compensate you for what you judge as your sister's failings in her behaviour.

But this is business - whatever you & your friends & family (I feel sorrier & sorrier for your sister) think about your sister's behaviour, is irrelevant. It's an investment, and you had an agreement. If you thought then that you didn't understand the arrangements, you should have taken independent legal advice.

I think this is a bit like the missing pound riddle and everyone who agrees with you is looking at it from the wrong perspective.

*Here's a well-known conundrum: suppose I need to buy a book from a shop that costs £7. I haven't got any money, so I borrow £5 from my brother and £5 from my sister. I buy the book and get £3 change. I give £1 back to each my brother and sister and I keep the remaining £1. I now owe each of them £4 and I have £1, giving £9 in total. But I borrowed £10. Where's the missing pound?

The answer is that the £10 are a red herring. There's no reason why the money I owe after the whole transaction and the money I still have should add up to £10. Rather, the money I owe minus the change I got should come to the price of the book, that is £7. Giving a pound back to each my brother and sister just re-distributes the amounts. The money I still owe is reduced to £8 and the money I still have to £1. Rather than having £10-£3=£7, we now have £8-£1=£7. Mystery solved!*

Does that help (I know its not quite the same). But you are looking at what you are owed from the first incorrect viewpoint

Some people seem confused. There haven't been any specific overpayments, what OP is describing is a normal capital repayment mortgage, designed to pay off the capital in presumably 25 years. The rent would be slightly more than the cost of the mortgage payment INCLUDING its capital repayment portion. If they had gone for an interest only mortgage, the OP would owe her sister a lot of rent over and above that mortgage payment.

OP doesn't think her sister deserves income from this shared flat, she's just forgotten that it was originally a financially equal gift from their parents.

@Quartz2208 - I love your example, but OP doesn't understand that market rate being more than the mortgage cost means she had any benefit at all, so I don't think she's going to get it.

There haven't been any specific overpayments, what OP is describing is a normal capital repayment mortgage

OP, if that is the case you are definitely being a CF!

Quartz2208 I have been thinking the same. Have come close to drawing a chart for myself to try to set it out. Only because I too have been in similar loan/gift/sharing/profits type situations and the way you approach things can make a huge difference. It’s also quite hard to see the other side or the correct approach if you’ve started with a misunderstanding.
I am definitely in the 50:50 camp on this one as the right approach and additionally, in particular, to safeguard familial trust for when these siblings will need
To deal with their parents estate etc.

Drylce has a good point - if you don't think of the flat as a commercial (moneymaking) enterprise then take your 50-50 and be grateful. If you do think of it is a moneymaking enterprise now then accept that maybe you could have got more favourable terms for yourself but you didn't, and legally it's still 50-50.

Causing a disagreement between your parents over this is very ungrateful behaviour. Well OK it was foolish of them to give you a shared present instead of half each in the first place, and this sort of financial around arrangement often turns sour, but now they must feel that "no good deed goes unpunished". For your parents' sake, accept your 50-50 gracefully.

As someone said... Work out the different options and work out the differences... It may not be that much...

Assuming you value your sibling relationship its not worth reneging on deal of 50:50 split... Esp if difference is minimal

Split the deposit amount 50:50. Split the profit amount 50:50. You get the mortgage payments amount back. You pay your sister an amount equivalent to rent on her share of the property. Calculated on an annualised basis perhaps..ie. when first moved in its rental based on her deposit amount. Each subsequent year it's rental based on her deposit plus any increase in value of house. That's a long winded calculation but doable. How many years have you lived there?
You should never have agreed to a 50:50 ultimate split whilst paying 100% of the mortgage.
However your dh has benefited from living in the property too.
What you've ended up with is a bit of a mess that's going to take some untangling and possible cause acrimony.

So what was going through your mind op, when you paid extra lump sums in to reduce the mortgage - presuming this is what you mean by overpaying?
Have you presumed all along that dsis would only get half the deposit and half the increase in equity? If you've held this view for many years I suppose it is difficult to get your head round the new way of thinking.
Otoh your sister has let all these years pass never mentioning the money she could have made by renting it out, because she thought she had someone effectively renting it out. Ie. you paying the mortgage in lieu of rent.

You've both had different thoughts in your head - hence the confusion, but the overwhelming impartial advice on here is telling you that your way of thinking is wrong. If you calculate it your way, your dsis has lost her monthly income that she could have made. Ok she gets half the increase in value over the years BUT she's lost the money she could have made in rent.

You couldn't afford to buy a house on your own. You own half a house and need to pay rent to your sister for her half. That's what the mortgage payment is for. Half of it is your mortgage and the other half is to compensate your sister as she wasn't getting a monthly return on her investment.

Sister deserves income from her share of the flat. Morally her share does not include the mortgaged part as op was paying all of it. Her share is her half of the deposit and her half of any accrual in value.

OP, did you and sis choose the flat together? Did you both Intend to live in it and she then changed her mind (for whatever reason)?
Or did you sis invest her gift from your parents in a flat that you will live in and she will reap the reward at some point in the future?

Ferries your way of thinking (and also the ops) means the sister has lost out on a triple whammy. The poor sister hasn't had the benefit of living there, hasn't received a small income monthly (the small profit made by the difference from market rental value after taking mortgage payments away - which the op admits there is) and hasn't benefited from any of the mortgage being paid down. Oh and has also had to pay rent herself, apart from the year that she lived with her parents.

Poor sister. She's really lost out in all directions if it goes the ops way.

@Cornberry

The agreement was for half the deposit and increase in value therefore your sister isn't entitled to half of what you paid into the mortgage. Yes, you two should have discussed how paying off the mortgage played into it But there wasn't an agreement in place.

She had the option to pay half the mortgage but didn't.

If she wanted her room rented out or wanted rent from you while not living there she should have said that. She was happy not to do that and happy to piss money down the drain renting elsewhere which were her personal choices.

You chose to live there and pay the mortgage and associated fees, I'm shocked she feels she's entitled to half of what You paid on the mortgage. If anyone is being grabby and cheeky, it is her.

The simple fact here is you only own 50% of the house OP.

If you bought a house on the help to buy scheme, and bought 50% of that house, you would pay a mortgage repayment and a rental payment to the owner of the other 50%; the silent partner as you put it.

If you chose to sell said house, your rental payment would be lost and you would still only receive your deposit and what you paid off the mortgage for your 50% of the house.

This situation is EXACTLY the same and I think you know that. Who cares where your sister lived for the time you were in the house. I bet that after both of you had found partners and suchlike, there would have been no way you'd have had her move in during the time she needed to live rent free with youe parents.

I think you need to honour the original agreement.