The last twenty or thirty years have seen an increase in the number of people buying homes together, even though they are not married.

As the cost of property in the UK increases more of us are finding we are unable to buy even the most humble of homes, especially in the South East of England and other property ‘hotspots’. As a result, more and more of us are buying their first property with one or more friends as a first step onto the property ladder.

If you are one of these people, here are a few tips to consider when buying a home;

Do you trust your co-purchaser ? Then have ‘the conversation’.

Hopefully the answer to this is ‘yes’! Make sure you buy with someone you know well and whom you trust. Ideally, you are already living with them and know that you can stomach living together! It’s amazing how many friends fall out when they start living in each other’s space 24/7.

It should go without saying that the whole thing needs to be dealt with by a lawyer that has your own interests at heart, but it goes deeper than that. Make sure you have discussed clearly the house rules and the rules in the event that one of you hasa change of circumstances and wants to move out - and make sure these things are agreed - legally. This might mean each of you needs their own legal representative although some lawyers may be willing to act for you both in certain circumstances.

Decide who is paying for what and who owns what.

This is critical. If one of you is putting down a larger deposit remember that you are potentially taking a much larger risk. If the home is repossessed, you stand to lose all or part of that deposit, as well as your home. If your co-owner is making a larger contribution to the mortgage repayments then that’s fine, but if they stop paying, you are still required to pay the mortgage. If the mortgage isn’t paid you stand to lose your home and perhaps your deposit too. If you are joint mortgagors then you are likely both liable for each other's debt to that lender.

Presumably you will both share the cost of utilities? Make sure this is discussed and agreed. What about purchase costs, stamp duty land tax, etc? Put it in writing and advice your lawyer accordingly. That way there is less likely to be an honest misunderstanding later.

Joint Tenants or Tenants in Common?

This is an important decision and one which needs careful consideration.

A joint tenant has equal rights to the whole property and if one of you dies, the other automatically inherits the whole property. Also, a joint tenant cannot pass on his or her half-share of the property to someone else in their will.

Whereas a tenant in common does not necessarily own equal shares in a property. For example, you might own 75 per cent and your co-owner might own 25 per cent. Their share does not automatically go to you (and vice versa) in the event of their death. They can leave it to someone else in their will if they wish.

This will be evidenced by your lawyer in what is called a Declaration of Trust. Either way, you can always agree to change the way you own the property later.

It might be desirable for a happily married couple to be joint tenants because upon the death of one spouse the ownership of the home automatically passes to the other spouse. This generally makes things much simpler in probate or even makes probate unnecessary. But just because you are happily married does not mean you should be joint tenants!

Take advice. Also, if you are divorced think about this issue. It may be critical to what you leave your remaining family. Visit the Joint Property Ownership for more details on joint tenants and tenants in common.

Option to Purchase.

One of the biggest issues which is often unforeseen is a change in the personal circumstance of you or your co-owner. Perhaps one of you gets an offer to work overseas or you meet the love of your life and you want a home together. It’s worth considering these possibilities before you buy.

One way of dealing with this is to write into the agreement an option to purchase. Basically, either of you may serve notice on the other requiring that either the property is sold and/or bought by the other party. This allows either party to buy out the other at any time or, if preferred, sell the whole property and ‘cash-out’ the asset you both own.

The primary concern here is one of fairness. How do you determine the sale price? Well, there are lots of ways. Have an agreement that allows you both to agree a sum between you. If this cannot be agreed then you might either;

  1. Have an arrangement whereby each of you make a sealed and binding offer to an independent third party and whichever of you makes the higher offer is bound to purchase the property at that price or
  2. You have an arbitration system in place perhaps overseen by someone appointed by the Chartered Institute of Arbitrators or the RICS.

The upside to (1.) is a potentially low cost solution. However, enforcing the purchase has its own problems. Option (2.) will incur some costs but at least it allows you both time to arrange for the sale and it should be fair and just.

Buying together for Investment - but not occupying?

Nowadays more people are buying for investment purposes or because they want to help a child to get onto the property ladder. Joint ownership is potentially a way to help your child and also create a small investment for yourself. The big advantage is that, presumably, there is high trust between you and a mutual desire to be fair and reasonable.

In such cases the deposit that the child and the parent contribute might vary but perhaps the child pays all of the mortgage plus a fair rent to reflect the ownership share? Again, how you own the property should be considered by all parties and it is almost certain that some legal and tax planning advice (for example the implications of Stamp Duty Land Tax, Inheritance Tax, Capital Gains Tax and Income Tax on all or some parties).

If you are both (or all) buying the property as an investment then it’s worth considering how your marginal income tax rates are affected and whether a limited liability arrangement (such as buying through a limited company) might not be a better alternative.

In any event, most of us still require a mortgage when buying a new home and at Mortgage Required we offer joint buyers independent and specialist advice to meet your needs. Why not call us for an initial chat?

Contact Mortgage Required to speak to a mortgage adviser on 01628 507477.

 

Your home may be repossessed if you do not keep up repayments on your mortgage.

There will be no fee for Mortgage Advice. There may be a fee for arranging a mortgage. The precise amount will depend upon your circumstances, but we estimate it to be £399.

Mortgage Required Ltd, Finance House, 5 Bath Road, Maidenhead, SL6 4AQ is authorised and regulated by the Financial Conduct Authority reference 573718 at www.fca.org.uk.

The Financial Ombudsman Service is an agency for arbitrating on unresolved complaints between regulated firms and their clients. More detail can be found on their website: www.financial-ombudsman.org.uk

Call: 01628 507477