Should I buy a home with a friend or family member?
Buying a house or flat with someone else lets you pool your savings to make a deposit, and secure a mortgage based on your joint income. With greater buying power, you could get on the property ladder, buy a larger property, or open up the option of buying in more desirable areas.
Once you own the property together, you can share the cost of mortgage repayments, home maintenance, utilities, insurance and any other household bills.
People usually buy a property with one other person. However it is possible for up to 4 people to co-own a residential property. If you get on with and trust your co-purchaser/s, joint ownership offers real benefits.
What are the risks?
Buying a home with someone else is not without risk. A future change in circumstances could lead to a costly legal dispute.
What will you do if your cohabitee decides that they no longer want to own the property with you? Will you be able to buy them out? If not, will your partner be able to sell their share to someone else? Where would that leave you?
If the other person simply walks away, you will be fully liable for the mortgage. If you can’t afford the repayments on your own the property may be repossessed. Your credit rating would be affected and you would need to find somewhere else to live.
You may find that you have no option but to sell the property. If your mortgage is still in a discounted rate period, you could face early repayment penalties.
Chris Salmon, Director of Quittance.co.uk said, “With proper planning and advice, the risks of co-ownership can be reduced. The legal process of buying a home can bring potential problems into focus and prompt all parties to agree on a plan of action if things don’t work out.”
What are the different types of joint ownership?
At the end of the conveyancing process, your solicitor will register the ownership of your home with HM Land Registry (HMLR). With residential property, joint owners have the option of two types of property ownership:
With a joint tenancy, all partners jointly own the whole property. Joint tenancy is often the default choice for couples in a relationship as it helps avoid awkward discussions about who owns what in the event of a break up.
Joint tenancy is easier to set up when buying a home. There is no need to address who contributes what to the purchase or ongoing cost of ownership. Both parties simply own the property together.
If the couple split up or decided to sell, the sale proceeds would be shared equally. Alternatively one partner might choose to buy out the other, assuming that they are able (and approved) to take on the whole mortgage.
However, if the separation is acrimonious and the ownership split is contested by one partner who perhaps feels they contributed more, the matter could end up in court.
If one partner were to die then the surviving partner would inherit all of the property under the legal ‘right of survivorship’. The deceased partner cannot leave their interest in the property to anyone other than their co-owning partner. When the surviving partner dies, the property can then be left to anyone.
Tenancy in common
With tenancy in common, each partner owns a specified share in the property.
The shares do not need to be equal. If one partner is making a bigger contribution to the deposit or mortgage repayments, for example, the share split can reflect this, e.g. 60%:40% or 75%:25%. If the situation changes in the future, the share split can be adjusted accordingly.
A key benefit of tenancy in common is that it offers clarity from the outset. If one or more joint owners decide to sell, there is a legally documented position of who owns what. If there is a separation or dispute, the proceeds of any sale will be divided in accordance with the shareholdings.
As a tenant in common, you will also be able to leave your share of the property to whomever you wish in your will.
How can co-owners protect themselves against future problems?
Whether you are a couple in a relationship, or friends clubbing together to buy, the best approach is usually to discuss future possibilities before buying. Your solicitor can help guide you through the process and you can always change the type of tenancy in the future.
In particular, there are legal ways in which you can pre-agree what will happen if circumstances change:
Couples who buy a home and are not married or in a civil partnership, do not enjoy the same legal protections as couples who are.
A Cohabitation Agreement is a bespoke legal agreement commonly entered into by co-owners whose relationship has not been recognised by law. This agreement is an uncomplicated way of pre-agreeing who owns what and what would happen if the relationship were to end.
Cohabitation Agreements can be as simple or detailed as a couple wishes, but should at least cover:
- The percentage interest in the property that each co-owner holds
- The financial contribution each party will put towards the deposit
- How the property will be valued if one or more of you decide to sell
- A process for resolving disputes
- How maintenance and repairs will be paid for.
You should also consider what would happen if one of you were to die. Many cohabiting couples write a will but you could even stipulate that each partner takes out life insurance as part of the agreement.
Declaration of Trust
If two or more of you will have different levels of financial interest in the property, your solicitor will usually advise you to draw up a Declaration of Trust.
Also known as a Deed of Trust, this is a legally binding document that sets out each co-owner’s financial interest in the property, including:
- How the sale proceeds will be shared if the property is sold
- How the mortgage repayments will be apportioned
- How the property will be valued if one or more partners decide/s to sell
- Protecting a partner whose name is not on the mortgage (e.g. because they have poor credit)
A Declaration of Trust can be tailored to suit the circumstances of the individual parties and it can be incorporated into a cohabitation agreement.
So which type of ownership should I choose?
The short answer is, it depends. In many cases, you could choose either joint tenancy or tenants in common, but you should make sure you understand the implications of your choice. You should also seriously consider the clarity and peace of mind that a Cohabitation Agreement and/or Declaration of Trust can bring.
Conveyancing solicitors routinely advise cohabiting couples on their options, so don’t be afraid to ask questions early on.