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Buying a home with a partner or friend – what to watch for

Buying with your partner or a group of friends could help raise a bigger deposit and get you on the housing ladder but remember you could be responsible for the full mortgage if someone defaults. We look at joint tenancy and tenancy in common and what it means for getting a mortgage and what happens if you want to sell the property at a later date.

Buying with a partner

How many people can jointly own a property and what rights do they have?

Up to four people can jointly be registered as legal co-owners of a property.

Joint owners have a legal right to stay in their home unless a court order rules otherwise.

If one of the owners wants to sell the property or take a loan out against its value, all of the owners have to give their consent, unless a court order rules otherwise.

What are the different options for joint ownership?

There are joint tenancies, which are favoured by married couples and people in civil partnerships. And there is tenancy in common, which is favoured by groups of friends or relatives who are buying together.

What does joint tenancy mean?

If one of the joint tenants dies, the property immediately passes to the other owner. This means individual owners can’t pass what they consider ‘their share’ of the property to a beneficiary in their will. Unless the co-owners are married or in a civil partnership, inheritance tax may still be payable.

Joint tenants must act as one in the eyes of the law. So, individual tenants would not have the option of only mortgaging their share of the property, for example. All of the tenants would have to take out a joint mortgage.

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I’ve lived with my partner for years but we’re not married, we’re not joint tenants and only one of us owns the property – do we both have a claim on the property?

Probably not. If you’re not married, the law usually doesn’t give you any claim on your partner’s money or assets. But in some cases, if you have contributed to the purchase price or mortgage costs or made contributions to the upkeep of the property, a Court may find you have acquired an interest in its value.

Similarly, if you are the owner of the property but rely on contributions to mortgage payments and utility bills from your partner (who is not a joint tenant and not married to you), he or she has no legal obligation to make those contributions and could legally stop whenever they want.

To get around this you should seek legal advice about drawing up a legally binding cohabitation agreement.

You can also draw up a deed of trust with a power of sale, setting out the circumstances in which the property should be sold and what would happen to the proceeds.

Transfer of ownership into joint names

If you already own a home and then marry, you might then want to divide ownership between you by doing a transfer of ownership. The simplest way to do this is as a gift, since no money changes hands and there are no taxes to pay. Your spouse/civil partner is simply added to the title deeds as a joint tenant so you own the property jointly between you.

Alternatively, you can do a ‘transfer of equity’ in which your partner buys a share (typically 50%) of the property’s value. Note that the partner might have to pay stamp duty if the value of their share (equity plus mortgage taken on) is over £125,000. You’ll also need to pay a solicitor to handle the transfer of equity process.

What does tenancy in common mean?

Up to four people can be tenants in common for an individual property. This is a popular choice for friends or relatives who are buying together.

Tenants in common don’t have to own equal shares of the property.

They can each act individually, which means they can leave it to a beneficiary in their will. While in theory they have the option of mortgaging their share of the property, in reality finding a lender willing to lend in these circumstances would be difficult because the lender wouldn’t be able to enforce a sale if the mortgager defaulted.

Can tenants in common take out a joint mortgage?

Yes, most lenders will allow up to four applicants to take out a joint mortgage. But when they are deciding the size of your mortgage, they will usually only take into account the incomes of the two people who are paid most.

With our fee-free mortgage partners at L&C for your best options, get expert mortgage advice today.

What happens if I’m a joint tenant or a tenant in common and the other tenants stop meeting the mortgage payments?

A mortgage lender will always insist that borrowers are ‘jointly and severally’ liable. This means that if one of you stops paying his or her part of the mortgage the other (or others) will have to pay the full amount.

To avoid this, sit down and talk about what your plans are. Perhaps one of you wants to move in with a partner eventually, or maybe one of you has to move around with work and it wouldn’t be realistic to enter into a long-term legal arrangement and commitment.

Each of you should seek separate independent legal advice and always draw up a legal agreement, called a declaration of trust, which establishes when and how the property can be sold and how much notice needs to be given if one of you decides to end the arrangement, whether one or more of you  has the right of first refusal to buy the share of the owner who wants to leave, and how the net sale proceeds should be divided up.

This all sounds a bit risky – what are the alternatives to joint ownership?

Save, save and keep saving so you can afford the deposit for a mortgage alone.

Shared ownership allows you to partly own a property without having to involve your friends or loved ones.

The Government’s Help to Buy scheme provides loans to home buyers, which are interest free for the first five years.

And what if I do want to pursue a joint ownership – what next?

Speak to your solicitor or conveyancer dealing with the purchase of your home. They can help talk through the above options with you.

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